North Korean Economy Watch

Korea Times
Donald Kirk
1/24/2007

Gold fever is rampaging through the ruling elite of North Korea in the quest for relief from seemingly incurable economic malaise exacerbated by more than a year as a total outcast from the international financial community.

Word from Pyongyang is that trading companies and even individuals are offering payments in gold for imports from across the border with China and also in barter deals for products imported from elsewhere. Gold also has become a form of currency in the internal reward system of payoffs and bribes manipulated by Dear Leader Kim Jong-il to guarantee the loyalty of high-ranking officials.

The rush to sell gold – and, to a lesser extent, silver – has sharply escalated in the 16 months since the US Treasury Department blacklisted Banco Delta Asia (BDA) in Macau, banning all firms doing business with US firms from dealings with that bank. The Treasury Department charged that the BDA had been the principal conduit through which North Korea was shipping counterfeit US$100 “supernotes” printed on a highly sophisticated Swiss-made press in Pyongyang.

It’s well known that the US ban forced the BDA to impose a freeze on North Korean accounts totaling $24 million, but less well known that the bank also stopped purchasing gold produced by North Korea’s historic gold mines, in operation, sporadically, since the late 19th century.

Output of the mines, in mountains about 160 kilometers north of Pyongyang, fell sharply in the late 1990s as a result of flood and famine but, with foreign expertise, has begun to pick up in the past few years.

The impact of the ban, moreover, goes far beyond a single bank in Macau. Although North Korea last spring sold $38 million in gold and silver in Thailand, Pyongyang has been frustrated in reviving its presence on the London bullion market, the world’s largest marketplace for precious metals, amid increased US pressure on the large international banks that are the major buyers of gold.

It was in the aftermath of the ban on the BDA that North Korea’s Chosun Central Bank coughed up the information required by the London Bullion Markets Association (LBMA) for listing as a “good deliverer” of gold. North Korea from 1983 to 1993 had been in the LBMA’s good graces, averaging a ton a month in sales to London buyers that included some of the world’s leading banks, but had slipped off the list after failing to keep up deliveries.

The fact that the Chosun Central Bank again is listed with the LBMA, however, is no guarantee North Korea will be able to sell its gold. The US Treasury ban on dealings with the BDA – as well as sanctions unanimously imposed by the United Nations Security Council after North Korea conducted an underground nuclear test in October – has spooked buyers in London.

While the LBMA disavows “political criteria” in deciding on eligibility for its “good delivery list”, an LBMA memorandum leaves no doubt how buyers are likely to respond to overtures from a country or company on an international blacklist. None of them, according to Stewart Murray, the LBMA’s chief executive, is willing to take delivery from a company or country that is subject to sanctions.

Or, as the LBMA memorandum puts it, “If, for instance, a bullion custodian considered that it was bound by national or international sanctions that were in force against a particular country, it would have to refuse to accept bars from a refiner in that country.”

The memorandum, moreover, does not mince words when it comes to stating the importance of a “good deliverer” rating. “Given the status of London as the world’s leading center for bullion trading,” it says, “the LBMA List has become the de facto world list of quality refiners and Good Delivery accreditation is a highly sought-after accolade.”

In recent years, “the List” – capitalized in the memo – “has grown primarily due to the listing of refiners in China and Russia” and now totals 77 refiners in 31 countries.

Investors see North Korea as competing on a world stage once sanctions are lifted. “What we’re doing is normal business,” said Roger Barrett, whose firm, Korea Business Consultants, operates in North Korea from headquarters in Beijing. By reviving old minesand developing new ones, he argued, “We’re creating jobs for people, in line with the UN basic charter, in line with economic growth.”

Barrett also believes North Korea may somehow get around the sanctions by finding new markets. “Why would you go to the trouble of going to London?” he asked. “They’re totally entitled to sell their gold.” The fact is, however, that London remains the place to sell gold in significant quantities on a regular basis.

Under the circumstances, Colin McAskill, chairman of Hong Kong’s Koryo Asia Ltd and the guiding light of the Chosun Development and Investment Fund, dedicated to investing in North Korea, accused top US Treasury officials of waging a campaign to make sure the ban on banks dealing with the BDA extends to gold and silver.

McAskill accused US officials, led by Treasury Secretary Henry Paulson and Stuart Levey, under secretary for terrorism and financial intelligence, of “using coercion, innuendo and sheer force to intimidate banks from dealing with North Korea”.

Among the victims of the US campaign is one of Koryo Asia’s projects, the Daedong Credit Bank, the only foreign bank based in North Korea, set up primarily to deal with accounts of foreign firms and embassies in Pyongyang. The freeze of North Korean accounts in the BDA, according to McAskill, includes about $7 million funds of Daedong Bank customers.

McAskill avidly supports North Korean demands for the US to lift the ban on the BDA – a move that would not only open up the frozen North Korean accounts but would provide the opening needed for Pyongyang to trade in a wide range of products around the world.

The financial issue is assumed to have ranked at the top of an agenda discussed in meetings in Berlin between the chief US envoy, Christopher Hill, and his North Korean counterpart, Kim Kye-gwan. Hill, reporting on the Berlin talks in stop-offs in Seoul, in Tokyo and Beijing, seemed hopeful about “progress” in the next round of six-party talks on North Korea’s nuclear weapons, expected to open in Beijing next month, after the failure of negotiators to get anywhere in the last round before Christmas.

South Korean media said North Korea had agreed to shut down its five-megawatt reactor at its nuclear complex Yongbyon in return for the US promise of massive aid, the crux of the 1994 Geneva Framework Agreement that blew up in 2002 amid US charges of a separate, secret North Korean program for developing warheads from enriched uranium.

There was no assurance, however, that the US is ready to relent on the BDA or that the UN Security Council will consider lifting its own sanction – enough to dissuade banks in London from buying North Korean gold regardless of the US ban on the BDA.

McAskill believes the rationale for the crackdown on the BDA is flawed. He questions the validity of the counterfeit charge and, in any case, says most of the frozen funds are not those of the North Korean government, even though they’re tired up in North Korean accounts. “We want to get a breakthrough on the six-party talks by getting the sanctions eased or lifted entirely,” he said. “We’re at a very delicate stage.”

Whatever happens, McAskill sees North Korea as ripe for investment, with precious metals high on the list of potential exports. “North Korea wants to move back into legitimate business,” he said. “They have a wealth of minerals – gold, silver, zinc, magnesite, copper, uranium, platinum – that needs investment to extract.”

Everything you wanted to know about minerals in the DPRK and their export  can be found in these USGS reports (In PDF format):

 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 |

Korea Times:
11/13/2006
Andrei Lankov

For the last few decades a visitor to Eastern Siberia would sometimes come across unusual logging camps: fenced off with barbed wire, they sported the telltale portraits of Kim Ilsung and Kim Jong-il. These are North Korean camps: from the late 1960s, North Korean loggers have been working in Russia’s Far East.

In the 1960s the timber shortage was felt both in North Korea and the USSR, but the reasons for the shortages were different.

The Russians had plenty of forest, but lacked labor. When the gulags were emptied after Stalin’s death, few people were willing to up and fell trees in remote corners of Siberia.

The North Koreans had an abundance of cheap labor, but almost no good timber. Thus, the two Communist states had a potential match made in heaven.

In March 1967, when the relations between the two countries began to recover after a serious chill, the logging agreement was signed.

According to the agreement North Korean loggers were allowed to work in designated areas of the Russian Far East.

They were housed in special labor camps, run by the North Korean administration. The timber was to be divided between the two sides: the Russians 60 percent and the North Koreans 40 percent.

At their peak in the mid-1980s the Far East joint logging projects employed over 20,000 North Korean workers. This means that some 0.5 percent of all North Korean able-bodied men labored there. Nowadays, the operations are smaller in scale, with some 8,000 workers employed. An additional 3,000 North Korean workers are employed in other joint projects in Russia (construction industry, vegetable gardening etc.). Since the workers were rotated every three years, it is likely that up to a quarter of a million North Koreans have taken part in this project over the decades.

Politically, this was not as dangerous as it might seem. Even in the 1960s, the Soviet Union had far higher standards of living and was much more liberal and permissive society than the North.

However, the North Korean workers were in the middle of nowhere, and kept under the watchful eyes of their supervisors in the nearly isolated camps. People who broke the rules were arrested and sent back to the North. If it was deemed too difficult or impractical, they could be killed on the spot _ the Siberian forests provided more than enough space for unknown burials.

The Soviets usually turned a blind eye to everything the North Korean administrators did. In the early 1990s the situation changed. During the heyday of perestroika, investigative journalists began to report on the conditions of the North Korean workers.

An expose of the prison maintained by the North Korean security police in one of the logging camps led to a particular public outcry. In those days the Russians felt a nearly universal enthusiasm for democracy and believed that Kim Il-sung’s regime would soon collapse.

There were also publications about the secret opium plantations and illegal harvesting of protected species of plants and animals _ both, frankly, long established pillars of North Korea’s foreign currency earning programs.

On top of that, some loggers used the change in the international situation to defect to the South. In those days, defectors were still rare and thus welcomed in Seoul.

In 1992-1994 it appeared that the entire timber project would be discontinued owing to political considerations. However, the situation changed. The events of 1992-2005 made Russians quite skeptical about democracy, and very suspicious of idealistic crusades of any kind.

Thus, the North Korean camps were left alone to the great relief of the local Russian administrators and businessmen who make good money out of these projects.

For them, the North Koreans were but a source of cheap labor, and they did not care how these “Orientals” were treated by their supervisors.

When the initial Russian enthusiasm for a free press died out, the local politicians learned how to keep journalists away.

By the late 1990s, it also became clear that South Korea was not going to encourage the defection of the loggers. On the contrary, anecdotal evidence indicates that loggers who approach the local South Korean consulate are unceremoniously turned away.

Seoul does not need these impoverished and potentially troublesome brethren in our sunshiny days! Of course, some loggers run away, but largely in order to find better job opportunities in Russia’s black economy.

There are about a thousand such runaways hiding in Russia now, but the authorities tend to ignore their presence.

But what was the incentive for the North Koreans workers? The short answer is: money.

Really good money _ at least, by North Korean standards.

Bloomberg
Bradley K. Martin
12/28/2005

A sign of North Korea’s fledgling moves toward a market economy can be found at the Pyongyang monument commemorating the 1945 founding of the Workers’ Party. Beneath a 50-meter-tall rendition of the party’s logo — a hammer, sickle and writing brush — sits a street photographer.

A handmade sign displays her price list and sample photos, mostly of groups of North Korean visitors, with the monument as background.

The photographer is one of countless sidewalk entrepreneurs – – most of them selling food and drink — who have set up shop in North Korea since 2002. Before that, they would have been hauled off to re-education camps for profiteering. In the late 1990s, North Korea’s Civil Law Dictionary described merchants as a class to be eradicated because they “buy goods from producers at a low price and sell them to consumers at a high price by way of fraud, deceit and spoils.”

Since then, the party newspaper, Rodong Shinmun, has quoted Kim Jong Il, who’s held supreme power since the 1994 death of his father, Kim Il Sung, as favoring profits under socialist economic management.

North Korea, one of the world’s last Stalinist regimes, has gradually begun permitting commerce. On a four-day visit to Pyongyang, the capital, in October — arranged and scripted by the government — a group of 17 Western journalists got a glimpse of the changes. Clean, new restaurants were packed with paying customers while the streets — almost empty in 1979 and only lightly traveled in ’89 and ’92 — bustled with bicycles, motorbikes and Japanese sedans.

Casino Pyongyang

In the state-owned Yanggakdo Hotel on an island in the Taedong River, a mostly Chinese clientele played slot machines, cards or roulette at the Casino Pyongyang. Since 1998, Macau billionaire Stanley Ho, through his Sociedade de Turismo e Diversoes de Macau SARL, has invested $30 million in the casino, whose staff is also Chinese.

Now some investors from farther afield are joining pioneering Chinese and South Koreans in plunging into a country once so isolated it was known as the Hermit Kingdom. In September, Anglo- Sino Capital Partners, a London-based fund manager, said it had formed the Chosun Development & Investment Fund, which plans to raise $50 million for investments in North Korea.

“It’s the last virgin economy,” says Colin McAskill, 65, a director of Anglo-Sino and chairman of Koryo Asia Ltd., which is investment adviser to the new fund.

Natural Resources

Besides recent changes in the economic system, a 99 percent literacy rate and a minimum wage for workers in foreign-invested ventures of only $35 a month, McAskill says, he was drawn by North Korea’s rich natural resources — including iron ore, copper, lead, zinc, molybdenum, gold, nickel, manganese, tungsten, anthracite and lignite.

The fund will concentrate on North Korean companies that have been active internationally in the past, with track records as foreign currency earners, says McAskill.

He negotiated on behalf of North Korea with foreign bank creditors in 1987, when the country was unable to repay some $900 million in balance-of-payment loans that had enabled the regime in the 1970s to purchase Western industrial technology — Swiss watch-making machinery, for example — as well as such non-capital goods as 1,000 Volvo sedans from Sweden.

Oil Potential

The country’s petroleum potential lured Dublin-based Aminex Plc and its Korea-focused subsidiary, Korex Ltd., which in August announced the signing of a nine-year production-sharing agreement to explore and develop 66,000 square kilometers (25,000 square miles) of North Korean territory. The agreement covers areas in the Yellow Sea’s West Korea Bay and in the Sea of Japan as well as onshore.

While North Korea lacks proven petroleum reserves, according to the U.S. Energy Information Agency, the West Korea Bay in particular may contain hydrocarbon reserves, as it’s considered to be a geological extension of China’s oil-rich Bohai Bay.

More foreign investment may come, says Tony Michell, a Seoul- based consultant on North Korea. Michell, a 58-year-old Briton, says he has recently shepherded 20 senior managers of international companies, representing seven nationalities, to Pyongyang.

“They’re big players,” says Michell, declining to identify his clients by name or company. “They’re looking at everything, from services to manufacturing. They want to get the measure of the North Koreans and be ready if the six-party talks succeed.”

Six-Party Talks

The so-called six-party talks — between North Korea and China, Japan, Russia, South Korea and the U.S. — are aimed at ending the country’s pursuit of nuclear weapons. In September, the six countries agreed on a statement of principles to govern further talks. It called for a nuclear-free Korean peninsula, a peace treaty and economic cooperation in energy, trade and investment.

Seoul-based Hyundai Research Institute, an affiliate of the Hyundai Group, projected in September that a successful outcome to the talks would be worth as much as $55 billion to the economy in the North — and more than twice that in the South.

Optimism about the economy has boosted the prices of defaulted North Korean debt originally owed to hundreds of creditors, mostly European banks, which in the 1970s began meeting as a London-based ad hoc group to discuss restructuring options. In the 1990s, that so-called London Club turned a portion of the debt into Euroclearable certificates, securities that were denominated in Swiss francs and German marks.

The certificates are trading at about 20-21 percent of face value, up from 12 percent in 2003, according to London-based Exotix Ltd., a unit of Icap Plc, one of a few financial firms that make an over-the-counter market in them.

Excessive Optimism

The debt’s price has risen in the past on excessive optimism about the country’s future. In early 1998, the debt was trading at nearly 60 percent of face value amid rumors that North Korea would collapse imminently and be absorbed by wealthy South Korea, which would then make good on the entire outstanding debt.

That had not happened by the time of the crash later that year in global emerging-market securities, when the North Korean debt price sank to about 25 percent of face value.

Exotix estimates that North Korea owes the equivalent of some $1.6 billion in principal and interest to banks out of a total $14 billion in principal and interest owed globally to mainly communist and formerly communist countries.

Although a cease-fire was declared in 1953 in the war between North Korea and China on one side and the United Nations — under whose flag the Americans, South Koreans and others had fought — on the other side, no peace treaty has ever been signed.

The U.S. maintains sanctions under the Trading with the Enemy Act that restrict trade and financial transactions with North Korea — and apply to Americans and permanent residents of the U.S. and to branches, subsidiaries and controlled affiliates of U.S. organizations throughout the world.

China, Russia

North Korea’s flirtations with capitalism are belated compared with those of China and the former Soviet Union, which began opening their economies in the 1970s.

North Korea did pass a law legalizing foreign investment in 1984. The law, which permitted equity joint ventures between state enterprises and foreigners, attracted only $150 million in investment during the following decade, largely because investors were put off by the country’s poor roads, railroads, power systems and phone networks and by official interference in joint ventures’ recruitment, dismissal and compensation of workers, according to a 2000 thesis by Pilho Park, a postgraduate student at the University of Wisconsin Law School in Madison.

Vietnam Example

In contrast, Vietnam lured $7.5 billion in investment in the first five years after it opened its economy to foreign capital in 1988, Park wrote.

Following the collapse of European communism in the early 1990s, North Korea opened the Rajin-Sonbong Free Economic and Trade Zone on the northeastern border with China and Russia. A brief flurry of investor interest ensued and then fizzled out when a crisis over the country’s nuclear weapons program took North Korea to the brink of war with the U.S. and South Korea in 1994.

In the mid ’90s, catastrophic floods, combined with the collapse of the global communist system of aid and preferential trade, caused a severe energy shortage that crippled the economy. As much as 70 percent of manufacturing capacity went idle, according to the South Korean central bank.

Also in the mid ’90s, famine killed as many as 2.5 million North Koreans, by the estimate of the U.S. Agency for International Development.

Food Insecurity

Since then, food aid from abroad, an absence of large-scale natural catastrophes and a 2005 harvest that was the biggest in 10 years have kept North Korea from the massive starvation that’s taken place elsewhere, including Niger, says Richard Ragan, North Korea director for the United Nations World Food Program.

Still, “the country faces chronic food insecurity,” Ragan says. “One of the things that happened with the food shortages is that marginal lands became less controlled. You see people trying to farm on some of the most inhospitable plots of land you could imagine.”

In October, steep, unterraced hillsides were plowed outside Pyongyang. The crops can then wash down, rocks and all, during rainstorms, harming water supplies and damaging farmland – fertility.

A second nuclear weapons crisis boiled up in 2002 when the U.S. accused the North of conducting a secret uranium enrichment program — to replace a plutonium program that it had frozen as part of a settlement of the earlier crisis.

Economic Rules

That same year, the regime proceeded with what then Prime Minister Hong Song Nam described as dramatic new economic measures, which helped bring arbitrarily set prices and foreign exchange rates closer to those prevailing on the black market.

The North Korean won consequently dropped to 150 won to the dollar in December 2002 from 2.15 to the dollar a year earlier. The official rate is currently about 170 won, while on the black market, one dollar can bring about 2,000 won.

The government also introduced pay incentives aimed at boosting worker productivity. The system is in operation at enterprises such as the Pyongyang Embroidery Institute, where some 400 women stitch elaborate pictures for framing and sale.

Employees who don’t perform up to expectations aren’t fired; they’re denied raises, says spokeswoman Woo Kum Suk. Unable to live on their minuscule basic salary, equivalent at black market rates to something over a dollar a month, non-performers eventually quit and go elsewhere, Woo says. Good workers can see their salaries raised as much as fivefold.

Consumers

“In my opinion, it’s good to have this system,” she says. “Although the government supplies things to us, sometimes there’s something more we want to buy.”

North Korea has some way to go before many investors rush in. According to a UN report, net investment inflow for 2003 — the most recent year for which statistics are available — was a negative figure: minus $5 million.

Currently the country is constructing a new special economic zone at Kaesong, just north of the South Korean border, where several small companies from the South already employ North Koreans to make clothing, footwear and household goods. Authorities declined to let Western reporters visit it, permitting only a glimpse from a highway bridge a mile away.

Those who are investing are taking a long-term view. Singaporean entrepreneur Richard Savage was looking at least five years into the future in 2001, when he formed a joint venture tree plantation with the Ministry of Foreign Trade. The company, Evergreen Kormax Paulownia Ltd., is 30 percent-owned by the government, which has assigned Savage 20,000 hectares (49,000 acres) on a 50-year lease with an option to extend for 20 more.

Timber Business

Savage, 58, says he, family members, friends and a few other investors have put $3 million into the project so far. Savage says he hopes that by the time the paulownia trees mature — they grow as fast as 7 centimeters (2.85 inches) a day on his farm, and some may be ready for harvesting five years after planting — he’ll be able to sell the wood in a unified Korean market.

When the Northern economy takes off, the first beneficiary will be the building industry, he says. “That’s why I’m in timber,” he says, adding that his fallback plan is to sell the wood to China, Japan and South Korea.

It’s not the first venture in North Korea for Savage, who wears a cowboy hat and whose e-mail moniker is WildRichSavage. In 1994, he introduced North Korean officials to Loxley Pcl, a Thai telecommunications company. In 1995, an affiliate formed for the purpose, Loxley Pacific Co., signed a joint venture agreement with North Korea’s post and telecommunications ministry to create modern telecommunications in the Rajin-Sonbong special economic zone. The venture earns about $1 million a year, Loxley Pacific Chief Financial Officer C.C. Kuei, 56, says.

Mining for Gold

North Korea’s 1992 Foreign Investment Law guaranteed that foreign investors’ shares of profits could be repatriated, a promise that’s now being tested by Kumsan Joint Venture Co., a gold mining concern that’s half owned by a Singapore-led group of Asian investors and half owned by Hungsong Economic Group, a large trading, mining and manufacturing group in Pyongyang that’s controlled by North Korea’s military.

Roger Barrett, a Beijing-based British consultant, has helped arrange financing and technology for Kumsan. Barrett, 50, introduced Kumsan to the foreign investors, whom he declined to identify.

The company used its investment to buy secondhand mining equipment from Australia in 2004 for the venture’s mine 2,000 meters (6,562 feet) above sea level near the city of Hamhung. In the first year the new equipment was used, Barrett says, the mine produced about 100 kilograms (220 pounds) of gold, half of which the foreign investors took out of the country. He says doing business with North Koreans has proved to be absolutely normal. “It’s working very well,” he says.

Foreign-Run Bank

The business environment in North Korea is surprisingly welcoming, says Nigel Cowie, 43, a former HSBC Holdings Plc banker who was hired a decade ago by Peregrine Investment Holdings Ltd. to start North Korea’s only foreign-run bank.

When Peregrine collapsed in 1998, Cowie and the North Korean joint venture partner kept the local unit operating. He and three other investors bought Peregrine’s 70 percent stake in it from the firm’s liquidators in 2000. Cowie, who’s general manager of what’s now called Daedong Credit Bank, says the bank has about $10 million in assets and has only foreigners as customers, mostly Chinese, Japanese and Western individuals and institutions. Only North Korean-owned banks can do business with state enterprises and North Korean individuals.

Better Living Conditions

Living conditions for expatriates have improved significantly in the past three or four years, Cowie says over a meal of Korean barbecue in the capital’s Koryo Hotel. “For me, personally, it’s things like creature comforts, more shops, Internet, e-mail,” he says. While the Internet is available to foreigners, it is forbidden to most North Koreans.

Cowie says his biggest challenge at the bank comes from outside North Korea. In September, the U.S. Treasury Department barred U.S. financial institutions from dealing with a Macau bank, Banco Delta Asia, that it said had been “a willing pawn” in corrupt North Korean activities and represented a risk for money laundering and other financial crimes.

The bank and North Korea both denied the charges, but the Macau government took over the bank and announced it would provide no services to North Korea in the future. Cowie says the action tied up a big chunk of Daedong Credit Bank’s customers’ assets because Banco Delta Asia had been a main correspondent bank for North Korean banks.

The Treasury Department in October broadened its dragnet by ordering a freeze of the assets, wherever in the world the U.S. could assert its jurisdiction, of eight North Korean companies it suspected of involvement in proliferating weapons of mass destruction.

`WMD Trafficking’

The department explained its action in an Oct. 21 statement on its Web site: “The designations announced today are part of the ongoing interagency effort by the United States Government to combat WMD trafficking by blocking the property of entities and individuals that engage in proliferation activities and their support networks.”

North Korea sought to connect the Treasury actions to Washington’s position in the six-party talks. The country’s Korean Central News Agency, using the acronym for the Democratic People’s Republic of Korea, said on Dec. 2 that “lifting the financial sanctions against the DPRK is essential for creating an atmosphere for implementing the joint statement and a prerequisite to the progress of the six-party talks.”

Assistant Secretary of State Christopher Hill, the chief U.S. envoy to the talks, had said in a Nov. 11 press conference that the asset freeze wasn’t directly related to the talks.

Money Laundering Banned

Cowie says he doubts the U.S. action was intended to harm Daedong, which had already issued a manual prohibiting money laundering. He says he fears such U.S. actions could damp investor enthusiasm for North Korea. “It can cause the people doing legitimate business to just give up,” he says.

Cowie isn’t packing up to leave, though. Neither is Felix Abt, a Swiss native who heads a new European Business Association in Pyongyang. “I am very busy with visiting foreign business delegations,” Abt, 50, says. “Take it as a sign that the economy is developing and that more foreign business activities are under way.”

Outsiders’ investment on capitalism’s farthest frontier is gradually bringing benefits to North Koreans, too, says Savage, the tree farmer. “I can’t convert the whole country, but for the people who work for me, I’m giving them a better standard of living,” he says. “Slowly, people will prefer not to work for the government.”

If Savage and his fellow pioneers have their way, it’s only a matter of time before capitalism takes root in North Korea.

BBC
Alex Kirby
8/27/2004

[NKeconWatch: Here is the report-  DPRK_SOE_Report.pdf]

The UN and officials in Pyongyang have agreed the first-ever assessment of the state of the North Korean environment.

The report was written by North Korea’s national co-ordinating council for the environment, together with the UN’s Development and Environment Programmes.

The head of Unep said Pyongyang had shown its readiness to work with the world community to safeguard nature.

The report lists a catalogue of neglect and over-exploitation of resources, and says time is short to put things right.

The report, DPR Korea: State Of The Environment 2003, was produced by officials from 20 government and academic agencies, with training and guidance from the two UN programmes.

Future collaboration

It was compiled as a result of a visit to Pyongyang in 2000 by Unep’s executive director, Dr Klaus Toepfer.

He and Dr Ri Jung Sik, secretary-general of the national co-ordinating council, have now signed a framework agreement on joint activities to improve environmental protection.

The report covers five areas: forests, water, air, land and biodiversity. It says the most urgent priority is the degradation of forest resources.

Forests cover 74% of North Korea, but almost all are on steep slopes. In the last decade the forests have declined in extent and quality.

The report says this is because of timber production, a doubling of firewood consumption, wild fires, insect attacks associated with drought, and conversion of forest to farmland.

On water it says demand is rising “with economic development and the improvement in standards of living”, and calls for urgent investment in domestic sewage and industrial water treatment.

It notes that large quantities of untreated wastewater and sewage are discharged into rivers, and says some diseases related to water use “are surging”.

Air quality, the report says, “is deteriorating, especially in urban and industrial areas”. Energy consumption is expected to double over 30 years, from almost 48m tonnes of oil equivalent in 1990 to 96 million tonnes in 2020.

North Korea’s use of coal is projected to increase five times from 2005 to 2020, underlining, the report says, “the urgent need for clean coal combustion and exhaust gas purification technologies, energy efficiency, and renewable energy alternatives.”

On land use, the report says self-sufficiency in food production has been a national policy aim in North Korea.

Changed priorities

But it continues: “Major crop yields fell by almost two thirds during the 1990s due to land degradation caused by loss of forest, droughts, floods and tidal waves, acidification due to over-use of chemicals, as well as shortages of fertiliser, farm machinery and oil.

“Vulnerable soils require an expansion of restorative policies and practices such as flood protection works, tree planting, terracing and use of organic fertilisers.
“Recognising such issues, [the country] adjusted its legal and administrative framework, designating environmental protection as a priority over all productive practices and identifying it as a prerequisite for sustainable development.”

North Korea is home to several critically endangered species, among them the Amur leopard, the Asiatic black bear and the Siberian tiger.

Squaring the circle

It has signed up to international environmental agreements such as the Convention on Biological Diversity, though the report notes a continuing “contradiction between protection and development”, which it says is being overcome.

In a wider context, the report says: “The conflict between socio-economic progress and a path of truly sustainable development is likely to be further aggravated unless emerging issues can be settled in time.”

It says environmental laws and regulations need to be formulated or upgraded, management mechanisms improved, financial investment encouraged, and research focused on priorities.

Dr Toepfer said North Korea “has shown its willingness to engage with the global community to safeguard its environmental resources, and we must respond so it can meet development goals in a sustainable manner.”

BBC
Lucy Jones
4/13/2004

“Got any nuclear weapons for sale?” is the response Briton Roger Barrett usually gets when he tells people at Beijing cocktail parties that he invests in North Korea.
The country’s admission to a nuclear weapons programme and its listing on George W Bush’s “axis of evil” means most people are staying well away.

But Mr Barrett, 49, a former troop commander in the British army who has 10 years experience of doing business in North Korea, recently opened a branch of his consultancy firm, Korea Business Consultants, in Pyongyang.

A self-confessed “business adventurer”, he says there is growing interest in the country after Chairman Kim Jong-il introduced economic reforms in 2002.

It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market.

Robert Barrett, Korea Business Consultants 
He is also the enthusiastic publisher of what must be North Korea’s only business publication – the DPRK Business News Bulletin – which features some of the 250 companies he advises.

“It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market,” he says.

Mr Barrett is not alone.

Even in the middle of a nuclear crisis there are foreign investors in the country, and their numbers are increasing.

They say North Korea is a mineral rich country that needs everything and insist they have to get there first.

They also believe the 2002 economic reform is for real and that the country is gradually moving towards becoming a market economy.

Poverty

The little data there is on the country’s economy is hardly encouraging, though.

There has been a devastating famine and the UN says malnutrition is still widespread.

There are chronic heating and water shortages, and most North Koreans are paid less than £5 a month.

The country also has an appalling human rights record.

A BBC documentary on the country’s gulags this year contained allegations that chemical experiments are being carried out on political prisoners.

Meanwhile, the US says it is “highly likely” that North Korea is involved in state-sponsored trafficking of heroin.

In the political arena, the second round of six-nation talks aimed at resolving the nuclear crisis ended in Beijing in February without agreement, which means US and Japanese sanctions will remain in place.
‘Communism’ tourism

But the foreign entrepreneurs in North Korea are not put off.

Some are helped by UN employees who have worked in Pyongyang (among the few people to have had contact with the regime there) and many have a track record in China.

Pack a torch, conduct business meetings on the street to avoid big brother listening in and have plenty of “Asian patience” for the endless red-tape, they advise.

An Austrian company is reportedly buying pianos from the North Koreans, a French television station uses North Korean artists to produce cartoons, while a Singapore-based firm is developing forestry and tourism.

The Singaporeans intend to offer “adventure” stays on their North Korean forestry plantations.

Meanwhile, Western tourist agencies are gearing up to offer the last chance to see communism in action, and Fila and Heineken have reportedly entered into sponsorship deals with the North Korean regime.

North Korean labour

A German, Jan Holtermann owner of the computer firm KCC Europe, is putting North Korea online.

He hopes that by being there first he will be able to eventually tap into North Korean computer talent.

The country’s small number of internet users currently dial-up to Chinese providers, a costly process at about £1 a minute.

Mr Holtermann’s customers, who he hopes will number 2,000 by the end of the year, will have unlimited access for £400 a month.

As only a few North Koreans are permitted to have telephones, and as the internet service is costly, Mr Holtermann expects his customers to be government ministries, news agencies and aid organisations.

He has invested £530,000 in the venture, intending to get first pick when North Korean software programmers come onto the market.

“They are very talented,” he says.

“It’s this capacity we want to sell in Europe.”

The parcel delivery company DHL has operated in Pyongyang since 1997, when it was invited there by the government, and now has North Korean light manufacturing, textile and beverage companies on its books.

It sees itself as contributing to the country’s “slow but increasingly visible” economic reform programme.

British consultants

Former bank employee Mr Barrett is convinced North Korea is opening up much quicker than people think.

There are opportunities in banking, minerals, agriculture and telecommunications, he insists.

“There is the odd story of something going wrong,” he says.

“But when you walk around you notice construction going on.

“The people are feeling a change.”

High level contacts

But how to do business with one of the most isolationist regimes on earth?

Contacts are essential, say businessmen.

Though even knowing a North Korean minister is not enough, says Gerald Khor of Singapore-based forestry company Maxgro Holdings.

“You have to go above the ministers to the cabinet. You don’t have to know a member but you need to know people who can influence them,” he says.

“It is very important to get the favour of the dear leader (Kim Jong-il). Because when he says something, it gets done.”

Through a former UN employee, Maxgro got Kim Jong-il’s attention and has invested $2m in forestry, agreeing the state gets 30% of the profits.

“Kim Jong-il is an environmentalist,” Mr Khor says.

“We are confident we’ll get a return.

“We have dwindling supplies and this is high quality wood.”

To locate the forests elsewhere would cost much more, he adds.

Forced to change

Economic reforms introduced by the government in 2002 are seen as the first move away from central planning since the country adopted communism in 1945.

The government has been forced to change in order to survive, especially now it can no longer barter with Eastern Europe and the former Soviet Union, experts say.

“There is no real option not to carry out these reforms,” says UK-based Keith Bennett, who has taken trade missions to Pyongyang.

“But people don’t know where they will lead.

Chinese leaders have impressed on Kim Jong-il that there can be economic reform without fundamental political change.”

Way up on North Korea’s border with Russia and China is the Tumen economic zone, which was established in 1991 with UN help to lure investors.

The project has only had limited success and may indicate the type of problems those investing elsewhere in North Korea may face.

The North Korean section of the zone, Rajin-Songbong, hosts foreign-run hotels, telecommunications and restaurants, but that is about all.

“The North Koreans have sometimes been very co-operative and sometimes not, maybe because of policy change,” says Tsogtsaikhan Gombo, from the UN’s development agency.

“They were also disappointed when they didn’t see the investment.”

Vibrant Chinese economic zones nearby have put up fierce competition.

But even opening the door just slightly to let in capitalism has greatly improved the lives of the 150,000 people living in the zone, says Mr Gombo.

And many foreigners insist that small investments elsewhere in the country may have similar results.

Time
Donald MacIntyre
8/11/2002

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.”

Hermit state, international pariah, charter member of the “axis of evil”?North Korea is hardly an obvious place for long-term investments like tree farms. The decrepit Stalinist economy depends on international handouts to prevent widespread starvation. The Dear Leader, strongman Kim Jong Il, runs the country like a medieval fief. But Savage is confident that his $23 million, 20,000 hectare Paulownia plantation south of Pyongyang will pay off. His Singapore-based company, Maxgro Holdings, is investing $5 million in North Korea this year, and he even has plans to build a resort there, complete with a 70-room hotel, horseback riding, trout fishing and all-terrain vehicles. “This is a mega-growth area,” he says. “If you don’t move now, you will have missed the boat.”

Whether Savage has boarded the Titanic remains to be seen, but there are increasing signs that North Korea at last may be opening its barbed-wire gates, economically and diplomatically. Last month, the authoritarian leadership increased food prices, set artificially low by the government, by as much as 50 fold, while increasing miners’ and scientists’ salaries by almost as much. Many observers say the reforms, including the elimination of some manufacturing subsidies, signal that Kim is edging toward a market economy instead of perpetuating a system in which North Koreans rely on virtually free handouts from the government.

Just as intriguing is the sudden burst of sunshine out of Pyongyang diplomats, the normally reclusive North Koreans are now clamoring to talk to Seoul, Tokyo and Washington all at once. Senior North Korean government officials are scheduled to travel to Seoul this week for ministerial-level talks, the first such tete-a-tete in nine months. Says Yim Sung Joon, a senior advisor to South Korea’s President Kim Dae Jung: “This is a very important moment for the two Koreas.”

On the agenda: everything from reunions of separated families to rebuilding a railway across the heavily mined dmz dividing North and South. In a surprise move, Pyongyang has already agreed to send athletes to the Pusan Asian Games next month, the first time North Koreans will take part in an international sporting event in the South. Japanese officials head to Pyongyang next week for talks that will include the awkward issue of Japanese nationals allegedly abducted in the 1970s and ’80s, Japan wants them back before the two countries can normalize relations. Meanwhile, North Korean Foreign Minister Paek Nam Sun met with U.S. Secretary of State Colin Powell for a 15-minute chat on the sidelines of the asean meeting in Brunei two weeks ago, the highest level encounter between the two sides since George W. Bush became President.

Is this the same country whose navy six weeks ago shelled South Korean patrol boats off the west coast of the peninsula, killing five sailors? It is, say observers, who speculate that the naval battle may have been an accidental clash rather than a deliberate provocation. The country’s recent reforms and overtures are, in fact, in keeping with an agenda dating back to the late 1980s, when the Soviet Union unraveled and left its client state, North Korea, without a dependable source of oil and food. The conventional wisdom has been that Kim is too scared of losing control to risk reform. But a devastating famine in the mid-’90s made it clear the country could not go it alone–that it must, to some degree, join the international economic community.

Frequent business visitors to Pyongyang say the North Koreans have been overhauling their investment laws and welcoming international trade delegations in the hope of attracting foreign capital. Government connections are still essential, but there are fewer layers of bureaucracy than in China, say experts on North Korean business practices. Once a joint venture is signed, getting things done is no tougher than in other developing countries. “I find it very refreshing to be here,” says Savage. “The guys are very straight.”

But North Korea’s agricultural output has fallen dramatically and its infrastructure is crumbling. Most of its factories have shut down and its electric power system is in shambles. The country has one of the worst credit ratings in the world and its currency, the won, is not convertible. Building the basic services that might make North Korea alluring to more foreign investors will take billions of dollars in loans from international lenders like the World Bank.

Lending cannot take place without assent from the U.S., and Washington won’t approve until North Korea allows inspections of all its nuclear weapons facilities. The country froze its nuclear program under a 1994 agreement with the U.S., in return receiving oil imports and a commitment–backed by South Korea and Japan–to build two light-water nuclear power plants in North Korea. Ground has been broken for construction of one in the port city of Kumho. But under the agreement, North Korea must allow the International Atomic Energy Agency to assess whether Pyongyang is living up to its promise to come clean on all of its nuclear programs, a process that could take several years. The U.S. and its partners want to begin soon. So far, Kim has refused to allow inspections to resume, and the standoff goes on. Says a Western diplomat: “The North Koreans are going to have to be viewed as extremely clean.”

Nevertheless, a few brave pioneers have set up shop in North Korea in anticipation of better times. Swiss data-processing company Datactivity.com has run a joint-venture data-entry center in Pyongyang since 1997. Some South Korean companies have launched joint ventures in areas like animation and computer software. And Chinese traders do a booming business back and forth across the China-North Korea border. Robert Suter, who heads the Seoul office of Swiss power generation company ABB Ltd., says his firm is staking out a position in North Korea, “It is the same as it was in China years ago. You had to be there and you had to build trust.”

The question on many minds is whether Kim Jong Il, who has a history of trading friendly relations and empty promises for monetary assistance, is merely giving the world another head fake. His market reforms, according to skeptics, are designed not to liberalize the economy but to control the informal black markets that burgeoned during the famine, when the government could not feed everybody.

If North Korea is indeed serious about reform, it will begin by rebuilding its decimated manufacturing sector. The country needs to export goods if it is to earn hard currency to pay for the food and fertilizer it cannot produce itself. Cutting off subsidies to deadbeat factories is just a first step, and there is no evidence the government has a blueprint for moving further. “They aren’t scrapping the socialist system,” says Koh Hyun Wook, an expert on North Korea at Kyungnam University near Pusan. “These are makeshift moves to overcome the current economic crisis.”

Savage, the tree farmer, believes otherwise. He will be in North Korea with his Israeli irrigation engineers this week, setting up greenhouses and touching base with his North Korean partners. But he acknowledges his venture will require patience. The country “may be a bit backward,” he concedes, “but so what? If you are prepared to help, it will take off like a bloody bullet.” Or a paulownia tree.

UN PAN
Bertil Lintner
Suh-Kyung Yoon

Pak Ku Po and his companion would not make it in international business circles.  They have no name cards and one of them does not even want to give his name. They claim they know nothing about the place where they are based–“we’re just newcomers here”–but promise to be more forthcoming “the next time we meet.”  Their secretiveness is perhaps understandable as they work for Zokwang Trading, a state-owned North Korean company in Macau, which in the past has been accused of being involved in the distribution of counterfeit money, arms smuggling and terrorist training. North Korea had been accused of state-sponsored terrorism long before Afghanistan decided to give shelter to Osama bin Laden and the seeds of the present conflict in Central Asia were sown.

But now things are supposed to have changed, and Zokwang and other North Korean trading companies–and there are many of them throughout East Asia–claim they are legitimate business operations. Pak, for instance, says that Zokwang is involved mainly in the export of North Korean ginseng to Asian countries, and sweaters and other knitwear to France and Canada. Over the past few years, North Korea has embarked on a vigorous commercial drive across the globe, and, for the first time, it is making serious attempts to attract foreign investment. Is Pyongyang finally turning to capitalism to save the world’s last Stalinist state?

The main question is whether this change in attitude will, in the long run, also change North Korea’s economy and society–as similar initiatives by the Chinese communists in the late 1970s have begun to transform China. Or will more hard currency in the state’s coffers only serve to delay the collapse of one of the world’s most atavistic regimes, thus prolonging the suffering of the North Korean people? And have North Korean businesses overseas really become legitimate? Or are they still peddling fake bank notes, drugs and ballistic-missile technology? This is an important issue going forward because the United States has made it clear it will track down all sources of funding for terrorists in future–and now that other sources are drying up,lesser-known alternatives may come into vogue.

There is little doubt that the sale of ballistic-missile technology in violation of the Missile Technology Control Regime and, more generally, the export of weapons to terrorist organizations and the states that harbour them, is far more lucrative than all of Pyongyang’s legitimate commercial ventures put together. But it is equally true that the international war on terrorism will only make such sales more difficult with every passing day.

Ri To Sop, North Korean consul general at the recently established diplomatic mission in Hong Kong, is firm in his assurances. “Our Dear Leader has told us that this is a new millennium, and that we should not do things in the old way. There will be changes. Just wait and see,” he says. The “Dear Leader,” North Korea’s reclusive supremo, Kim Jong Il, visited China in May this year, where his hosts took him to see the stock exchange in Shanghai. In July, he embarked on a 10-day epic train journey through Siberia to Moscow and St. Petersburg, where he visited sites commemorating the 1917 communist revolution, but also held talks with Russia’s new, born-again capitalist leadership. The trip was hailed by South Korean Foreign Minister Han Seung Soo: “[This is] a very positive development because it is an indication that North Korea is willing to open up.”

The main force behind North Korea’s commercial drive is, perhaps not surprisingly, the country’s powerful military. In June, a North Korean defector described the North Korean People’s Army as the country’s biggest “foreign-exchange earner.” From early spring this year, servicemen have been made to engage in a variety of export-oriented projects including mushroom harvesting, gold mining, medicinal-herb collection and crab fishing.

The ruling Korean Workers’ Party is also reported to be operating more than 40 restaurants in six countries as a means of raising hard currency. The first North Korean eatery opened in Austria as early as in March 1986, but in recent years more have followed in China, Russia and Indonesia. According to South Korean intelligence, North Korea will soon open restaurants also in Bulgaria and Australia.

Even more imaginatively, the Dongkong Foreign Trade Corporation in the Chinese city of Dandong, just across the border from North Korea, acquired in September the exclusive right to sell North Korean medicines in the international market–including a brand called Cheongchun No. 1, which is a home-made North Korean version of Viagra.

EFFORTS PAYING OFF
In Thailand, a North Korean-owned company, Wolmyongsan Progress Joint Venture, has for years been engaged in mining activities near the Burmese border in Kanchanaburi, west of Bangkok, while Kosun Import-Export, which is based in the Thai capital itself, is permitted to trade in rice, rubber, paper, tapioca and clothing.  Kosun is located in a discreet office on the top floor of an eight-storey building in a Bangkok suburb. The company is also involved in property, apparently owning the building and renting out flats and office space.

At first glance, it seems that North Korea’s dive into the world of capitalism is paying off. North Korea does not release any trade or economic figures, but according to data collected by South Korea’s state-run Korea Trade-Investment Promotion Agency, or Kotra, from the North’s main trading partners–China, Japan, Thailand and Hong Kong–its external trade in 2000 jumped by 33.1% to $1.96 billion from a year earlier.  It was the second straight year that North Korea saw its trade volume expand and that, too, at a much higher rate than the modest 2.6% increase in 1999.

Kotra is now actively promoting more trade with North Korea. In April this year, the agency published a fact book on how to do business in the Stalinist state, complete with useful phone numbers in Pyongyang and the complete text, in English, of all new laws relating to foreign trade and investment. South Korea’s interest in the development of the impoverished north is understandable. Since South Korean President Kim Dae Jung undertook his historic journey to Pyongyang in June last year, the question of a reunification of the Korean peninsula has become much more urgent–and the South Koreans are painfully aware of the wide income gap between the North and the South.

“Unless we help North Korea develop and strengthen its economy, both countries would collapse if they were reunited,” says a South Korean diplomat on condition of anonymity. “The South would not be able to take care of the North. The gap is just too wide today.” The cost of reunification was first discussed in South Korea shortly after East and West Germany–at a tremendous price–became one country in 1990. According to Marcus Noland, a researcher at the Institute for International Economics, Washington, South Korea would have to invest as much as $3.17 trillion in order to avoid an abrupt influx of people to the South and to upgrade living standards in the North–significantly more than West Germany had to pay to raise living standards in East Germany to an acceptable level.

A closer look at Kotra’s upbeat trade figures for North Korea also reveals a somewhat less rosy picture. In 2000, North Korea exported $556 million worth of machinery and chemical goods–while importing $1.4 billion worth of food, computers and vehicles. The North’s perennial trade deficit is expected to worsen this year as the country has to increase imports of rice, corn and other grains. According to the Bank of Korea, North Korea’s foreign debt totals $12.3 billion and Pyongyang’s credit rating is the lowest in the world.

There is no doubt that it is the dire straits that North Korea has found itself in which have forced its government to resort to commerce, not any real change of mind in the inviolability of the country’s austere socialist system. According to a study by Heather Smith and Yiping Huang of the Australian National University, the present food crisis in North Korea was caused by the disruption in trading ties with former communist allies in the late 1980s. The former Soviet Union ceased providing aid in 1987. More devastatingly, they emphasize, both the former Soviet Union in 1990 and China in 1993 demanded that North Korea pay standard international prices for goods, and that it pay in hard currency rather than through barter trade, as previously had been the case. This affected petroleum imports to the degree that they declined from 506,000 tonnes in 1989 to 30,000 tonnes in 1992.

Subsequently, North Korea embarked on its overseas capitalist ventures. According to a Western diplomat who follows developments in North Korea, the country’s embassies abroad were mobilized to raise badly needed foreign exchange. This, he says, was done partly in the name of the diplomats themselves, or through locally established trading companies, which in reality are offshoots of bigger, Pyongyang-based state trading corporations. “Not only do the embassies have to be self-sufficient, they are also expected to send money back to the government in Pyongyang,” the diplomat says. “How they raise money is immaterial. It can be by legal or illegal means. And it’s often done by abusing diplomatic privileges.”

The sad truth is that the North Koreans are desperate and prepared to do anything to make money, and Bangkok seems to be emerging as a centre for many of their activities. Western intelligence officials based in the Thai capital are aware of the import and sale of luxury cars, which are brought in duty-free by North Korean diplomats. Another way of raising money is to insure a cargo consignment at a disproportionate level, and then report the goods lost. “This is usually done through international insurance markets, and there is little the companies can do but to pay up,” the diplomat says.

And earlier this year, fake $100 notes turned up in Bangkok. The police believed that the North Korean embassy was responsible as some of its diplomats were caught trying to deposit the forgeries in local banks. The North Korean diplomats were warned not to try it again. In a more novel enterprise, the North Koreans in Bangkok were reported to be buying second-hand mobile phones–and sending them in diplomatic pouches to Bangladesh, where they were resold to customers who cannot afford new ones.

And even where businesses tend to be more legitimate, North Korea has managed to attract some rather unusual investors. As early as 1991, the North Koreans established a “free economic and trade zone” in Rajin-Sonbong along the Tumen River near the border with China and Russia. Some 746 square kilometres were set aside for “foreign capitalists”–but there have been very few takers apart from pro-Pyongyang ethnic Koreans from Japan, who have invested because of patriotic duty rather than any expectations of quick returns. In fact, there is only one major foreign investor in the entire zone: Hong Kong entrepreneur Albert Yeung Sau Shing, who controls the Emperor Group, which has interests in gold, securities, property and entertainment in Hong Kong and China as well as a banking venture in Cambodia.

In October 1999, Yeung opened the $180 million Seaview Casino Hotel in Rajin-Sonbong. Although locals are banned from entering the establishment, the Emperor Group is betting that wealthy Chinese and Russians will come there to gamble. The casino has 52 slot machines and 16 gaming tables offering everything from blackjack and baccarat to roulette. In Hong Kong, Yeung is best remembered for his acquittal at his dramatic trial for criminal intimidation in 1995 when all five witnesses called by the prosecution testified that they did not remember anything. Yeung was accused of having kept a former employee prisoner after threatening to break his leg. Even the victim himself said he could not remember what had happened.

In the same year, Macau gambling tycoon Stanley Ho also opened a casino in North Korea, but in the capital itself. Ho’s $30 million Casino Pyongyang is located in the Yanggakdo Hotel, where his partner is Macau businessman Wong Sing-wa. His company, the Talented Dragon Investment Firm, in 1990 became Pyongyang’s unofficial consulate in Macau with authority to issue North Korean visas.

Wong, who has interests in several Macau casinos, made headlines in early 1998, when a Lisbon-based weekly newspaper, the Independent, protested over his presence in a delegation from Macau that was being received by the Portuguese president. The paper cited a Macau official as saying that Wong had “no criminal record, but we have registered information that links him to organized crime” in Macau.

With such business partners, it is obvious that the North Koreans have a long way to go before they acquire a better understanding of how capitalism really works. Nor has North Korea, despite its efforts, managed to attract a large number of new investors.  In July this year, a delegation of representatives from 17 Hong Kong companies went to North Korea on a trip initiated by the new consulate in the special administrative region. But though they showed some interest, no commitments were made.

LITTLE BUSINESS INTEREST
In October, the Singapore Confederation of Industry sent a 25-member delegation to North Korea to look into business opportunities, but little investment is expected from there as well. In recent years, only one Singapore company, Maxgro Holdings, has concluded a joint-venture agreement with North Korea. Maxgro intends to plant 80 million paulownia trees on 20,000 hectares of state-owned land and the project is meant to produce wood for furniture, veneers and musical instruments. But at a value of only $23 million, it is hardly going to turn things around in North Korea.

And, as the fake dollars in circulation in Bangkok show, old habits die hard. In fact, North Korea’s main export item remains ballistic-missile technology. There are especially two North Korean companies that have attracted the attention of Western diplomats: the Changgwang Sinyong Corporation and the Lyongaksan General Trading Company.

In the 1990s, Changgwang was sanctioned by the U.S. government for exporting ballistic-missile technology to Pakistan. In July this year, Changgwang was once again sanctioned by Washington, this time for providing Iran with the same technology. According to Western diplomats, Lyongaksan, which like Changgwang is controlled by the North Korean military, sends people under commercial cover to countries such as Syria and Libya, where they in reality sell weapons systems. According to a report which the Seoul-based Korean Institute for Defence Analyses released in April, North Korea has exported at least 540 missiles to Libya, Iraq and other Middle East countries since 1985.

Libya recently bought 50 Rodong-1 missiles with a range of 1,000 kilometres. Cash-starved North Korea has not hesitated to sell weapons to whoever wants to buy them, including terrorist groups. A video of an attack last year by the Liberation Tigers of Tamil Eelam on a Sri Lankan navy vessel shows speedboats which appeared to be of North Korean origin. The rebels also appeared to be using a North Korean variant of the Russian 107 millimetre Katysha rocket launcher. And in late 1990, North Korea sold Burma 20 million rounds of 7.62 millimetre rifle ammunition, which intelligence sources say ended up in the hands of the United Wa State Army, a drug-trafficking group which is active in the Burmese sector of the golden triangle.

While the world is focusing on the terrorist threat from Afghanistan, North Korea’s potential for mischief has been almost overlooked. But in testimony on April 17 this year, Deputy CIA Director John E. McLaughlin warned: “North Korea’s challenge to regional and global security is magnified by two . . . factors . . . first the North’s pursuit of weapons of mass destruction and long-range missiles, and its readiness–and eagerness–to become missile salesman to the world. And second, the economic and humanitarian disaster that has afflicted the people of the North–a catastrophe whose effects will endure for generations, no matter how the Korean situation finally plays out.”

Unlike North Korea’s more mainstream trading companies, its sale of ballistic-missile technology and military hardware raises millions of dollars, which–minus commissions for the North Korean “businessmen” in the field–flow back into Pyongyang’s coffers. “There is no evidence to suggest that this money is used to put food upon the tables of North Korea’s starving people,” quips a Western diplomat.

North Korea, which depends on international aid to feed its people, has imported $340 million worth of military hardware over the past decade, according to South Korean security officials. This may be less in absolute terms than what South Korea spends on its military. But the much-poorer North spends 14.3% of the country’s GDP on its military compared to the 3.1% spent by the South.

So, for the time being, missiles rather than mushrooms make up the backbone of the North Korea’s exports. If some capitalist seeds have been sown during the present drive to shore up the economy, it will take some time for a new business mentality to emerge. Kim Jong Il, it seems, is not yet about to become another Deng Xiaoping.  But in a world ever more concerned with the spread of biological, chemical and nuclear weapons, states that are known, or suspected, to possess them will find themselves facing intense scrutiny–if not outright isolation. North Korea, thus, has very good reason to come in from the cold.

The Independent
Terry McCarthy Helen Womack
3/13/1994

SEVERAL hundred North Koreans have escaped from gulag- style logging camps in Siberia. The mass break-out turns a spotlight on the shadowy camps where, Russian journalists say, North Koreans are kept as ‘virtual slaves’ to cut timber in a shameful deal that is profitable to Moscow and Pyongyang.

As many as 150 of the loggers are trying to defect to South Korea, according to government
 sources in Seoul. North Korea angrily denies the reports, describing them as ‘rumour, unfounded propaganda and sheer fabrication’. But one of the escapees, contacted this week in the Russian Far East city of Vladivostok, said economic hardship at home and bad living conditions in the camps were driving many of the loggers to think seriously of defecting.

Park Dong Bok, who comes from the northern part of North Korea, close to the Chinese border, had been working for two years in one of the Siberian timber camps close to the city of Khabarovsk. Although on Russian territory, the 16 camps are run entirely by North Koreans, watched over by Pyongyang’s notorious security police who confiscate passports so workers cannot travel, even within Russia. Russian officials are not allowed inside the camps, despite reports of serious abuses, but they tolerate this because the North Koreans are an exceedingly cheap labour force. A portion of the timber is given to Russia and the rest goes to North Korea.

Mr Park is 36, and like all the lumberjacks in Siberia – estimated at between 15,000 and 20,000 – he has a wife and family back in North Korea. The loggers’ families act as virtual hostages to discourage defection attempts.

Though the workers initially volunteer to come to Russia, conditions are reminiscent of Stalin’s forced labour camps of the 1950s. Life is unpleasant, particularly in the winter when there is no heating – though food rations were better than at home, said Mr Park: the loggers received rice every day, meat twice a month – usually pork imported from China – and grew their own vegetables. In North Korea most people receive meat only on a few feast days, and rice is often replaced with low-quality cornmeal.

But discipline in the camps was harsh, he said. There were frequent beatings by camp guards, and two types of prison: a log house for minor infractions and solitary confinement cells for ‘ideological crimes’, such as criticising the government of Kim Il Sung. The loggers dreaded these prisons: sleep was impossible, rations were reduced, beatings were commonplace and not all prisoners got out alive. The work day began at 5am, and continued until 8pm in the summer, 5pm in the shorter winter days. Rest days were rare. Each logger received one new set of clothes per year, and most worked for three years before returning home. They earned an average of dollars 25 a month (paid in North Korean won), and those able to cut 50 per cent more than their target could earn a maximum of dollars 40 a month.

To supplement their income, some of the loggers secretly distilled alcohol in the forest and sold it to Russians who came to the perimeter fences at night. Russian prostitutes also arrived at night.

Mr Park was driven to defect by news from home. Because his father had retired, his family’s food ration had been reduced, and to supplement their diet his mother started dealing on the black market. She was discovered, and the family was deported to a poor mountain area as punishment. His wife divorced him and took her two children with her.

With nothing to hold him back, Mr Park decided to escape and seek asylum in South Korea. Other North Koreans he worked with escaped because of hardship at home, and the news about the outside world that they received from illicit contacts with Russians. Since South Korea opened a consulate in Vladivostok last year, the North Koreans have made this city their first destination: it is several hundred miles from the logging camps, compared with the 5,000-mile journey to the next South Korean diplomatic post in Moscow.

Mr Park, who speaks a little Russian, is hiding in Vladivostok until his asylum request is processed. He is afraid North Korean agents will track him down. The South Korean government is still debating whether to accept the asylum requests. Normally Seoul receives only a handful every year, from North Korean diplomats in Africa or Asia.

Officials are concerned that, if all the loggers are accepted, many more may flee the camps, upsetting relations with Moscow and the tentative peace talks with Pyongyang.

Russian journalists first brought the plight of the North Koreans to light in 1991. The existence of the camps, which first started operating in the 1950s, has been kept secret, and few Russians know about them.

North Korea’s official news agency betrayed the government’s embarrassment, saying reports of defecting loggers were ‘a malicious abuse and slander’ and ‘an unpardonable insult to the Korean working class, who are masters of the country’.