North Korean Economy Watch

UPDATE 32 (2012-1-27): According to an article in the New York Times, inter-Korean trade and aid declined in 2011:

On Friday, the South’s Unification Ministry said that South Korean aid to the North fell to 19.6 billion won, or $17.5 million, last year [2011], down more than 51 percent from a year earlier [2010].

Inter-Korean trade fell by more than 10 percent [from 2010 to 2011] to about $1.5 million in 2011, the ministry said.

UPDATE 31 (2011-12-10): According to the Korea Times, the potential food aid is not being auctioned off.  It is being sent to South America. According to the article:

Seoul will send baby food originally offered as aid to North Korea to El Salvador following Pyongyang’s refusal to accept delivery, to help the South American country deal with damaging floods, officials said Friday.

The delivery consists of 190,000 packs of baby food that were part of a $4.4 million flood aid package to the North, which the Stalinist regime rejected two months ago amid high tension.

It was slated to depart from the port city of Busan via cargo ship for El Salvador, which has appealed for help to deal with floods that displaced tens of thousands earlier this year.

Seoul offered the aid, which also included biscuits and instant noodles, to help the North deal with torrential summer rains. But Pyongyang demanded cement and equipment instead and eventually shunned the offer altogether.

The rerouting of the items underscores lingering tension despite efforts to warm ties and eventually resume regional dialogue on dismantling the North’s nuclear program. Regional players want the situation on the peninsula to improve before the talks begin.

Pyongyang’s silence over the aid put a damper on the early signs of improvement. President Lee Myung-bak has been exercising a softer line since September, when he tapped close aide Yu Woo-ik as unification minister, including expanding humanitarian activities and cultural exchanges.

But the North, apparently seeking rice and other forms of massive aid, has recently slammed the flexible policy as political pandering to the South Korean public, which is gearing up for elections next year.

Such remarks come even as the unification ministry continues to approve northbound aid, including $5.65 million worth for infants, children and pregnant women through the United Nations Children’s Fund (UNICEF). Consultations are ongoing over how to provide more of the baby food. Seoul has also attempted to auction some of it off through a government website.

The North Korean regime is thought to be doing all it can to secure food and other handouts ahead of next April, when it will celebrate the 100th anniversary of the birth of its founder Kim Il-sung. Watchers say that the North is liable to alternate pressure and peace offensives to secure as much aid as it can through inter-Korean and multilateral channels.

UPDATE 30 (2011-12-6): According to the Korean Herald the first auction of potential food aid (See Update 27 below) did not go so well, so Seoul is trying again:

South Korea plans a second attempt to auction off baby food originally intended for North Korean children, officials said Tuesday.

The move comes after nobody bid for 540,000 packs of baby food on Onbid, an auction Web site run by the state-run Korea Asset Management Corp.

South Korea plans to issue a second public notice and adjust the prices, said an official handling the issue at the Unification Ministry. He did not elaborate on further details.

The baby food is part of 5 billion won ($4.4 million) worth of emergency relief aid South Korea had planned to ship to North Korean flood victims earlier this year.

South Korea dropped that plan in October after differences between the two Koreas on the items to be sent. South Korea had insisted it would deliver baby food, biscuits and instant noodles to the North, instead of the cement and equipment its communist neighbor had requested.

Separately, South Korea has been in talks with local private relief agencies over how to donate another 290,000 packs of baby food to other countries, according to another ministry official.

She declined to give further details, saying consultations are taking place.

UPDATE 29 (2011-12-5): The South Koreans will donate US$5.65 million to the DPRK via UNICEF.  Accoring to Yonhap:

South Korea said Monday it will donate US$5.65 million (about 6.5 billion won) for humanitarian projects in North Korea through the U.N. body responsible for the rights of children.

The donation to the United Nations Children’s Fund, or UNICEF, will benefit about 1.46 million infants, children and pregnant women in North Korea, according to the Unification Ministry, which is in charge of relations with the North.

Seoul’s contribution will be used to provide vaccines and other medical supplies as well as to treat malnourished children next year, said the ministry.

There have been concerns that a third of all North Korean children under five are chronically malnourished and that many more children are at risk of slipping into acute stages of malnutrition unless targeted assistance is sustained.

“The decision is in line with the government’s basic stance of maintaining its pure humanitarian aid projects for vulnerable people regardless of political situation,” Unification Ministry spokesman Choi Boh-seon told reporters.

South Korea has been seeking flexibility in its policies toward the North to try to improve their strained relations over the North’s two deadly attacks on the South last year.

…

South Korea donated $20 million for humanitarian projects in North Korea through the UNICEF between 1996 and 2009.

Last month, the South also resumed some $6.94 million worth of medical aid to the impoverished communist country through the World Health Organization.

..

Separately, South Korea also decided to give 2.7 billion won ($2.3 million) to a foundation to help build emergency medical facilities in an industrial complex in the North Korean border city of Kaesong.

More than 47,000 North Koreans work at about 120 South Korean firms operating in the industrial zone to produce clothes, utensils, watches and other goods. The project serves as a key legitimate cash cow for the impoverished communist country.

UPDATE 28 (2011-12-1): Distribution of private aid monitored in N.Korea. According to the Hankyoreh:

“North Koreans know that the wheat flour aid they received came from South Korea.”

These were the words of Cho Joong-hoon, director of the Unification Ministry’s humanitarian assistance division, during a meeting with reporters Wednesday at the Central Governmental Complex in Seoul upon his return from a recent visit to North Korea to monitor the distribution of aid.

“The name of the South Korean private aid group, the manufacturing company, the date, and the address were all printed on the packages of flour,” Cho said.

Arriving in North Korea on Sunday with Kim Min-ha, co-chairman of the private group Ambassadors for Peace, and three others, Cho visited three sites to observe the distribution of the 300 tons of flour provided in aid. The site were the Namchol Kindergarten, February 16 Refinery Kindergarten, and Tongmun Nursery in Chongju, North Pyongan.

It was the first visit to any part of North Korea besides Kaseong and Mt. Kumkang by a government official in the one year since the Yeonpyeong Island artillery attack on Nov. 23, 2010.

Cho said that the distribution, storage, preparation, and supply of the flour were monitored and that everything was confirmed to be proceeding as planned.

On the situation on the ground, Cho said, “Judging simply from the nursery and two kindergartens, the children’s nutritional condition does not appear to be good.” Cho noted that no heating was being supplied to the facilities despite the cold weather.

Cho said that while North Korean authorities did not official request food aid, a request was made under unofficial circumstances.

Cho also noted that construction efforts were under way on a highway connecting Pyongyang with Sinuiju.

“It is not very far from Pyongyang to Chongju, but I think the trip took about four hours because of the detour around the highway construction,” he said.

Analysts said this appears to be linked to hurried infrastructure building efforts, including highway servicing and construction, amid recent moves by North Korea to rebuild its economy through a stronger economic partnership with China.

UPDATE  27 (2011-11-29): Seoul auctions off “unwanted” DPRK food assistance. According ot the Korea Times:

South Korea has taken steps to auction off some baby food originally intended for North Korean children, an official said Tuesday.

The move comes nearly two months after South Korea dropped a plan to send 5 billion won ($4.3 million) worth of aid to North Korean flood victims, citing no response from the North as the reason for the change of plan.

South Korea had insisted it would deliver baby food, biscuits and instant noodles to the North instead of cement and equipment requested by the North.

South Korea’s Red Cross, which handles relief aid to the North, gave public notice of a bid for 540,000 packs of baby food on Onbid, an auction website run by the state-run Korea Asset Management Corp.

Separately, South Korea has been in talks with local private relief agencies over how to donate the other 290,000 packs of baby food to foreign countries.

Unification Minister Yu Woo-ik has ruled out rice aid to the communist country unless Pyongyang admits to last year’s deadly provocations.

South Korea suspended unconditional aid in 2008 and imposed sanctions on the North last year in retaliation for the sinking of a South Korean warship that was blamed on the North.

The North has denied involvement in the sinking that killed 46 sailors. It also shelled a South Korean border island in November 2010, killing four South Koreans.

Still, South Korea has selectively allowed religious and private aid groups to deliver humanitarian and medical assistance to North Korea.

Also on Tuesday, a Unification Ministry official and four civilians were to return home after a rare trip to the North aimed at ensuring that South Korea’s recent private aid had reached its intended beneficiaries.

UPDATE 26 (2011-11-25): According to Yonhap, ROK officials are traveling to the DPRK to monitor food aid:

A South Korean official and four civilians left for North Korea on Friday on a rare mission to ensure that recent aid from Seoul had reached its intended beneficiaries, an official said.

The trip comes a day after North Korea threatened to turn South Korea’s presidential office into “a sea of fire” in anger over Seoul’s massive military maneuvers near the tense sea border.

…

The Unification Ministry official and four civilians were to arrive in the North’s capital later Friday via Beijing, according to the Unification Ministry, which handles inter-Korean affairs.

It is first time that North Korea has allowed a South Korean official to travel to the isolated country to monitor aid since a conservative government took power in Seoul in 2008.

They are scheduled to visit a day care center and two other child care facilities in the northwestern city of Jongju to monitor how 300 tons of flour were distributed to children and other recipients, according to a civic group.

Ambassadors for Peace Association, a civic group that is partly funded by the Unification Group, donated the flour to Jongju, the birthplace of Unification Church founder Moon Sun-myung.

The civic group said the monitors also plan to discuss details on another 300 tons of flour aid before returning home Tuesday. Some members of the civic group are associated with the controversial Unification Church.

Read previous posts on the ROK’s aid to the DPRK in 2011 below:

(more…)

From a recent Newsweek article about meth use in the DPRK:

First synthesized in 1893, meth is now one of the world’s most widely abused drugs, imbuing the user with intense feelings of euphoria, concentration, and grandiosity. Smoked, injected or snorted, the drug also suppresses the need for food and sleep for an extended period of time; coming down can bring fatigue, anxiety, and occasionally suicidal ideation.

Inside North Korea, observers say, many use meth in place of expensive and hard-to-obtain medicine. “People with chronic disease take it until they’re addicted,” says one worker for a South Korea-based NGO, who requested anonymity in order to avoid jeopardizing his work with defectors. “They take it for things like cancer. This drug is their sole form of medication,” says the NGO worker, who has interviewed hundreds of defectors in the past three years. A former bicycle smuggler who defected in 2009 told NEWSWEEK of seeing a doctor administering meth to a friend’s sick father. “He took it and could speak well and move his hand again five minutes later. Because of this kind of effect, elderly people really took to this medicine.”

Jiro Ishimaru, founder and editor of Rimjin-gang, a magazine about North Korea and reported by people inside the country but published in Japan, says he has seen several North Koreans take meth to relieve stress and fatigue, including his former North Korean business partner. “He didn’t start taking it as a drug but as a medicine,” Ishimaru says.

The drug also offers an escape that might not otherwise be possible. As Shin puts it: “There’s so little hope in North Korea—that’s why ice is becoming popular. People have given up.”

Read the full story here:
North Korea’s Meth Export
Newsweek
Isaac Stone Fish
2011-6-19

UPDATE: UN World Health Organization has criticized the Amnesty report.  According to the Associated Press:

The World Health Organization found itself Friday in the strange position of defending North Korea’s health care system from an Amnesty International report, three months after WHO’s director described medicine in the totalitarian state as the envy of the developing world.

WHO spokesman Paul Garwood insisted he wasn’t criticizing Amnesty’s work, but the public relations flap illustrated an essential quandary for aid groups in unfree states: how to help innocent people without playing into the hands of their leaders.

Amnesty’s report on Thursday described North Korea’s health care system in shambles, with doctors sometimes performing amputations without anesthesia and working by candlelight in hospitals lacking essential medicine, heat and power. It also raised questions about whether coverage is universal as it — and WHO — claimed, noting most interviewees said they or a family member had given doctors cigarettes, alcohol or money to receive medical care. And those without any of these reported that they could get no health assistance at all.

Garwood said Thursday’s report by Amnesty was mainly anecdotal, with stories dating back to 2001, and not up to the U.N. agency’s scientific approach to evaluating health care.

“All the facts are from people who aren’t in the country,” Garwood told reporters in Geneva. “There’s no science in the research.”

The issue is sensitive for WHO because its director-general, Margaret Chan, praised the communist country after a visit in April and described its health care as the “envy” of most developing nations.

Major global relief agencies have been quietly fighting for years to save the lives of impoverished and malnourished North Koreans, even as the country’s go-it-alone government joined the exclusive club of nuclear weapons powers and wasted millions on confrontational military programs.

Some groups may fear being expelled from the country if they are openly critical of Pyongyang, which is highly sensitive to outside criticism. Still, Chan’s comments were uncommonly ebullient.

Garwood and WHO spokeswoman Fadela Chaib insisted that Amnesty’s report was complementary to their boss’ observations, and sought to downplay Chan’s praise for North Korea. Instead, they focused on the challenges she outlined for North Korea, from poor infrastructure and equipment to malnutrition and an inadequate supply of medicines.

But whereas Chan had noted that North Korea “has no lack of doctors and nurses,” Amnesty said some people had to walk two hours to get to a hospital for surgery. Chan cited the government’s “notable public health achievements,” while Amnesty said health care remained at a low level or was “progressively getting worse.”

Asked Friday what countries were envious of North Korea’s health, Chaib said she couldn’t name any. But she highlighted the importance of maintaining the health body’s presence in the country, where officials do their best to save lives despite “persisting challenges.”

“We are an organization dealing with member states, and we respect the sovereignty of all countries,” Chaib said. “We need to work there to improve the lives of people.”

Sam Zarifi, head of Amnesty’s Asia-Pacific program, said the human rights group stood by its findings.

“We certainly have a lot of restrictions in terms of working in North Korea, but we did our best in terms of capturing the information we could verify,” Zarifi said. “We don’t take the WHO’s statements as criticizing or rejecting Amnesty’s findings.”

He said Amnesty had spoken to North Koreans as well as to foreign health care and aid workers, and relied heavily on WHO for information — including the assessment that North Korea spends $1 per person per year on health care, the lowest level in the world.

The U.N. estimates that 8.7 million people need food in North Korea. The country has relied on foreign assistance to feed much of its population since the mid-1990s when its economy was hit by natural disasters and the loss of the regime’s Soviet benefactor.

North Korea, ruled by Kim Jong Il, is routinely described by U.N. and other reports as one of the world’s most repressive regimes.

Garwood said Amnesty’s research added a needed element to understanding health conditions in North Korea, but added that it didn’t even mention recent improvements in the country as the result of a program funded by South Korea and aided by WHO.

The U.N. body claims that maternal mortality has declined by over 20 percent since 2005, and diarrhea cases and deaths in operations have also dropped. It says more than 6,000 doctors and nurses have been trained in emergency obstetric care, newborn care and child illnesses, while clinics have received better material for operations, blood transplants and other medical interventions.

As for Chan’s April claim that “people in the country do not have to worry about a lack of financial resources to access care,” Garwood said hundreds of field missions have been conducted in North Korea.

“None have come back reporting the kinds of things in the Amnesty report in terms of payment for services,” he said.

“I’m not saying they’re not credible accounts,” he added. “But it’s not taking into account some of the things that are happening today.”

Zarifi, of Amnesty, said the whole debate would be ended if North Korea’s government provided access to monitors so that everyone had a better understanding of the country’s health care system.

“Every indication we have indicates the state of health care in North Korea is dire,” he said.

ORIGINAL POST: Here is the introduction to the report (which you can download here as a PDF):

In the early 1990s, the Democratic People’s Republic of Korea (DPRK or North Korea) faced a famine that killed up to one million people in a population that at the time hovered around 22 million (the current population stands at 23.9 million). Food shortages and a more general economic crisis have persisted to this day. The government has resolutely maintained that it is committed to, and capable of, providing for the basic needs of its people and satisfying their right to food and a proper standard of health. The testimonies presented in this report suggest otherwise. The people of North Korea suffer significant deprivation in their enjoyment of the right to adequate health care, in large part due to failed or counterproductive government policies. These poor policies include systematic failure to provide sufficient resources for basic health care (North Korea had one of the lowest levels of per capital funding for health care recorded by the World Health Organisation in 2006). After nearly two decades, food insecurity remains a critical concern for millions of North Koreans. This has been compounded by the government’s reluctance to seek international cooperation and assistance, which the government is obligated to do when it would otherwise be unable to ensure minimum essential levels of food for the whole population, and its restrictions on the delivery of humanitarian assistance. This delayed and inadequate response to the food crisis has significantly affected people’s health.

Additionally, a currency revaluation plan in November 2009 caused spiralling inflation that in turn aggravated food shortages and sparked social unrest. In the first few months after the plan went into effect, the North Korean government exacerbated the situation by restricting the use of foreign currency, closing down food markets, and prohibiting small-plot farming. Many people died of starvation and many others lost their entire savings.

Amnesty International has documented how widespread and chronic malnutrition, which suppresses people’s immune system, has triggered epidemics and mass outbreaks of illnesses related to poor diet. Interviews with North Koreans depict a country that professes to have a universal (free) health care system but in reality struggles to provide even the most basic service to the population. Health facilities are rundown and operate with frequent power cuts and no heat. Medical personnel often do not receive salaries, and many hospitals function without medicines and other essentials. As doctors have begun charging for their services, which is illegal under North Korea’s universal health care system, the poor cannot access full medical care, especially medicines and surgery.

The interviews conducted by Amnesty International indicate that the North Korean government has also failed its obligation to provide adequate public health information. As a result, most of the interviewees were unaware of the importance of seeking proper medical diagnoses or completing a course of medication. And, because many hospitals no longer supply free services or medicines (despite government commitments to the contrary), many people normally do not visit doctors even when they are ill.

In a 2004 report, Starved of Rights: Human rights and the food crisis in the Democratic People’s Republic of Korea (North Korea), Amnesty International documented actions of the North Korean government that aggravated the effects of the famine and the subsequent food crisis, including denying the existence of the problem for many years, and imposing ever tighter controls on the population to hide the true extent of the disaster from its own citizens. It also documented the government’s refusal to allow swift and equitable distribution of food and its imposition of restrictions on freedom of information and movement, which exacerbated the population’s ability to search for food.3 Although some progress has been made since 2004, access to food is still a critical issue in North Korea. As this report demonstrates, the inadequate and sometimes counter-productive actions of the North Korean government over the country’s food crisis have had a devastating impact on the health of the population.

Under international law and standards, North Korea is obligated to protect the rights of its population to the highest attainable standard of health. This means that, at the very least, the state must provide for adequate health care and the underlying determinants of health, including food and nutrition, housing, access to safe and potable water and adequate sanitation, safe and healthy working conditions, and a healthy environment. North Korea’s responsibilities under international and domestic law will be addressed in greater detail in section 5.

To improve the situation, Amnesty International presents the following key recommendations to the government of the Democratic People’s Republic of Korea with more detailed recommendations in the conclusion of this report.

Amnesty International calls on the North Korean government to:

1. as a matter of priority, ensure that food shortages are acknowledged and effective steps taken to address these shortages, including acceptance of needed international humanitarian assistance;

2. ensure the need-based and equitable distribution of health facilities, goods and services throughout the country;

3. co-operate with the World Food Programme and donors, allow unrestricted access to independent monitors, and ensure non-discrimination, transparency and openness in the distribution of food aid;

4.ensure that medical personnel are paid adequately and regularly so that they may carry out their duties properly;

5. undertake information and education campaigns to provide accurate and comprehensive information on prevalent infections and diseases; their causes, symptoms and treatment; and the importance of medical diagnosis and effective use of medicines.

Furthermore, Amnesty International recommends to the international community, and in particular, major donors and neighbouring countries such as China, Japan, Russian Federation, South Korea and US to:

1. ensure that the provision of humanitarian assistance in North Korea is based on need and is not subject to political conditions.

This report has received wide coverage in the media.  Here are the links:

Barbara Demick, Los Angeles Times

Choe Sang-hun, New York Times

Yonhap

BBC

Geoffrey Cain writes in Time:

Few investors can boast the one-of-a-kind global pedigree of Felix Abt. Since 2002, the Swiss businessman has found his calling as a point man for Western investments in — of all places — North Korea, where he helped found the Pyongyang Business School in 2004. He also presided over the European Business Association in Pyongyang, a group in the capital that acts as a de facto chamber of commerce. A few years ago, that position led him to help set up the first “European Booth” featuring around 20 European companies each year at the Pyongyang Spring International Trade Fair, an annual gathering of 270 foreign and North Korean companies currently underway in the hermit kingdom until Thursday.

Yet Abt, 55, who lives in Vietnam and therefore won’t be attending the trade fair this year, laments the giant cloud hanging over the country: in recent years, political turmoil on the peninsula has raised the stakes even further for doing business in North Korea — even for the country’s main patron, China. Though investors have always faced the prospect of sanctions, he says, the situation has worsened after the United States ratcheted up sanctions on the government in 2006 on allegations that it was counterfeiting U.S. dollars. And in 2006 and 2009 the Kim Jong-il regime tested two small nuclear bombs, prompting heavier sanctions from the United Nations in 2006. Recently, tensions with Seoul have spiked over the March sinking of a South Korean corvette in waters near the North.(See pictures of the rise of Kim Jong-il.)

Those measures hit home for Abt. While he was running a pharmaceutical company in Pyongyang called Pyongsu in the mid-2000s, he learned that the U.N. Security Council had imposed sanctions on certain chemicals — a move that could have forced him to completely stop manufacturing medicine. Thankfully, he adds, he had already secured a large stock of the substance beforehand. “Whatever business you are involved in,” he says, “some day you may find out that some product or even a tiny but unavoidable component is banned by a U.S. or U.N. sanctions because it can, for example, also be used for military purposes.”

Those dilemmas haven’t stopped Abt. In 2007, he co-founded an information technology firm in Pyongyang called Nosotek, whose 50 or so employees design software applications for the iPhone and Facebook. The venture has already seen its share of success: one of its iPhone games ranked first in popularity for a short while on Apple’s Top 10 list for Germany — though he can’t name the software out of concern for protecting his contractors from bad publicity.(See pictures of North Koreans at the polls.)

For some companies, the stigma of a “Made in North Korea” label matters less than the competitive edge gained from having low overhead costs and a diligent workforce whose wages remain less than outsourcing powerhouses like China, Vietnam and India. In the past, North Korea has attracted the interest of multinational corporations looking for cheap labor in fields as diverse as electrical machinery and cartoon animation. Yet few multinationals show their faces at this month’s fair, a decline from the early 2000s when Abt says they were appearing regularly to look for opportunities in electricity, infrastructure, transportation and mining.

Not all foreign ventures in the North are driven by profit margins alone. The 2005 animated Korean movie Empress Cheung, a popular fantasy film drawn jointly by South and North Korean animators, brought attention to the animation industry in North Korea. Nelson Shin, head of the Seoul-based animation studio that started the project, claims he worked with North Korea for a greater cause than cheap labor. “It wasn’t so much because of cost efficiency as because of cultural exchange between the two Koreas,” he says.

For a country so poor, North Korea has churned out a remarkable number of talented engineers and scientists who fuel some of these small sectors (along with its controversial nuclear weapons program). In the 1960s and 1970s, the government pushed the country to become self-sufficient through development projects, a part of its ideology of “Juche” that promotes absolute autonomy from foreign powers. The communist regime of Kim Il-sung prided itself on its universities and public housing system, in particular. “It was an advance from pre-World War II days,” says Helen-Louise Hunter, a former CIA analyst now in Washington, D.C., who researched North Korea during those decades. “Kim Il-sung was genuinely interested in improving his people’s standard of living, and was off to a good start in a couple of areas compared to South Korea in those early days.”

Yet North Korea fell behind after the South’s own military dictators put their country into industrial overdrive throughout the 1970s and 1980s. Then the Soviet Union collapsed in 1989, depriving North Korea of valuable aid. Then came a famine in the mid-1990s that delivered the final blow, leaving up to 3 million people dead and crippling the capacities of the already isolated state.

Today, the pariah regime of Kim Jong-il is allegedly known to raise money through illicit activities like trafficking narcotics and money laundering. But it’s not known how much those activities figure into the country’s GDP of $28.2 billion in 2009 and its $2 billion worth of exports in 2008, the most recent year data is available. “Not that much income comes from illegitimate operations if you mean drugs and counterfeited dollars,” says Andrei Lankov, a North Korea expert at Kookmin University in Seoul. “More come from arms sales, though, but I would not describe this as an illegitimate trade.”

Abt shakes off the image of Pyongyang being the center of a mafia state. He sees himself and other foreign investors as the potential movers and changers of Kim’s hermit regime. “Cornering a country is ethically more questionable than engagement,” he says. “Foreigners engaging with North Koreans are change agents. The North Koreans are confronted with new ideas which they will observe and test, reject or adopt.”

Read the full story here:
Can North Korea Be Safe for Business?
Time
Geoffrey Cain
5/20/2010

From YouTube:

(Click on image to see video)

According to the video description:

This was PyongSu’s introduction to donor organisations and individuals that have been purchasing pharmaceuticals abroad and shipped them to North Korea. PyongSu’s promotional presentation explained to them why they should place their orders with PyongSu rather than with pharmaceutical companies abroad.

As PyongSu had no budget to mandate a professional advertising company with the task its managing director Felix Abt made the concept, the script and produced it in-house towards the end of 2005, with the help of North Korean IT and designing students and their Canadian trainer Ian Lee as well as teacher Michael P. Spavor, then giving language courses in Pyongyang, who was the “voice” in this clip. Thus, this unique advertising clip was made in its entirety in Pyongyang (and by people who are not advertising professionals). Check it out and add your comment!

Longer videos on investments in the DPRK can be found here.

The General Association of Koreans in Japan (Chongryun) have made a video about foreign direct investment and joint venture companies in the DPRK.  I have posted links to the video below.  It features the PyongSu pharmaceutical factory among other things.  It is in Korean and Japanese (with Japanese subtitles), so if there are any readers who care to translate, please let me know if there is any interesting information in the videos:

Part 1:

Part 2:

Part 3:

Over the last few years, the European Union has pursued an engagement policy with North Korea.   MEP Glyn Ford makes regular trips to Pyongyang to facilitate diplomatic progress; the German Freidrich Naumann Foundation runs economic education courses; European donors founded the Pyongyang Business School; and a small group of European ex-pat businessmen formed a de facto chamber of commerce, the European Business Association in Pyongyang.  Although European companies have experienced mixed success in the DPRK they continue to look for new opportunities. 

This morning, however, Felix Abt, a Swiss director of the PyongSu Pharmaceutical Joint Venture Co. in Pyongyang informs me that his life insurance policy (purchased from a European company) has been cancelled. 

“A European life insurance company cancelled my life insurance because I am a dangerous person living in a dangerous country. Credit card organisations cancel credit cards for such persons in such countries, health insurance companies come up with other reservations and limitations and the latest organisation that has just expelled me is LinkedIn with a very curious explanation.”

I am unsure how the cancellation of life insurance policies could impact other Europen investments in the DPRK, but the marginal effect cannot be positive.  Mr. Abt has been a resident of Pyongyang for years where he manufactures Western-quality pharmaceuticals.  Needless to say, the DPRK is very much in need of his services, so it is a shame that after all this time he is now considered a liability by his insurer.

Mr. Abt also forwarded his rejection from the business networking site LinkedIn, which is posted below:
 

Apparently LinkedIn‘s legal department considers logging into the server as “receiving goods of US origin” (the software I presume), and so it prohibits account holders, or even logging in, from Cuba, Iran, North Korea, Sudan and Syria—even if they are Swiss.

In December 2008, the office of the US Director of National Intelligence issued a report titled, “Strategic Implications of Global Health (ICA 2008-10D).”  In this report, the DNI made the following comments about the state of public health in the DPRK and its effects on economic growth and military preparedness:

North Korea (p.46)
WHO Ranking of Health Systems (out of 190 countries rated): 167
NCMI Ranking of Health Care Capabilities: 5 (Unsuitable)

1. Economic crisis and famine of 1990s fueled breakdown of once-efficient health-care system.
2. Lack of medicine, equipment, sanitation, and reliable energy supplies make quality healthcare virtually unobtainable outside of Pyongyang.
3. Persistent refusal of international health expertise and assistance makes significant short-term improvements unlikely.

Most Urgent Health Problems:
1. TB, scarlet fever, and measles particularly prevalent, although Pyongyang’s secretiveness makes outbreaks extremely difficult to verify and track.
2. Chronic diseases account for an estimated 40 percent of deaths.
3. Even after the widespread famine of the 1990s, prolonged and severe malnutrition persisted; more than half of North Korean children are stunted or underweight, while two-thirds of young adults are malnourished or anemic. The World Food Program currently warns that a new food crisis is in the making as the result of floods and North Korea’s refusal to accept food aid from a new South Korean government that is highly critical of Pyongyang.

Other:
1. North Korean-manufactured illicit drugs—an effort to earn hard currency—increasingly used by citizens of that country as substitutes for scarce medicines or to relieve hunger or boredom.
2. HIV/AIDS prevalence is negligible.

Strategic Considerations:
1. Widespread malnutrition and accompanying physical and cognitive disabilities among DPRK children and young people likely inhibitors of economic growth—with or without opening to the outside world or reunification with the South.
2. If reunification occurs, South Korea will face costs not only of incorporating an economic void, but also those of a huge health-care burden. Seoul could look to other countries or to multilateral organizations to help defray expenses.
3.  Poor health is weakening military readiness because capable new recruits are in short supply. Loyalty may also erode over time, according to Eurasia Group; even when soldiers are well fed, they may be concerned about their malnourished family members.
4. The famine of the 1990s destroyed absolute state control of food rationing, internal movement of citizens, and information as North Koreans were compelled to defy state restrictions in their struggle for survival—and as those who had escaped to China in search of food and work returned with news of the outside world, according to Human Rights Watch.

Potential Opportunities:
1.  Health cooperation (amelioration of North Korea’s heavy health burden) could serve as a means of “diplomacy through the back door.”

Other Comments:

Widespread ill health in the youth cohort may reduce a country’s pool of healthy and capable military recruits, a phenomenon that is currently playing out in Russia and North Korea. Deployed military forces will continue to be vulnerable to the ravages of infectious diseases, and the capability of a government to provide adequate health protection for its troops will significantly impact its ability to project force abroad. (p.5)

Malnutrition-related cognitive disabilities among North Korean children and young people likely will impact future economic growth in that country regardless of when Pyongyang opens to the outside world or reunifies with the South. Nationwide malnutrition has compelled Pyongyang to lower minimum height and weight requirements for military service, and an estimated 17 to 29 percent of potential North Korean military conscripts between 2009 and 2013 will have cognitive deficiencies disqualifying them for service. (p.6)

Along these lines, it is likely that malnutrition-related cognitive disabilities among North Korean children and young people—resulting from the 1990s famine, as well as the widespread hunger that persists to this day—will inhibit future DPRK economic growth, with or without opening to the outside world or reunification with the South. (p.24)

As a consequence of early childhood malnutrition, an estimated 17 to 29 percent of potential North Korean military conscripts will have cognitive deficiencies severe enough to disqualify them for service by US standards (This figure does not include individuals who are mentally capable but have physical conditions disqualifying them from service). The National Center for Medical Intelligence estimates that mental fitness of North Koreans subject to military conscription will be at its weakest during the period 2009-2013 as children born during the severe food shortages and famine of the 1990s reach military age. (p.28)

For the record, the UN WHO ceased publishing the Ranking of Health Systems in 2000 due to the “complexity of the task.” My suspicion is that it was actually ended because member governments did not appreciate being ranked in this field.  However the DPRK’s score of 167 dates from the final publication eight+ years ago. I am unable to investigate the DPRK’s score from the NCMI because this report is not publicly available (as best I can tell).

Although this report offers a decent summary projection of the effects of poor health on the DPRK’s strategic options, there is not much new, or newsworthy, about the report (at least as it pertains to the DPRK).  Most of this information has been floating around the public domain for some time. In fact, I probably never would have heard of this study if the North Korean’s had not publicly complained about it in KCNA. (Click here to read KCNA story) 

Quoting from Yonhap:

“They floated the cock-and-bull story,” the KCNA said, “It is an open secret that the ill-famed intelligence and plot-breeding institutions of the U.S. including the CIA are hell-bent on releasing false reports about its hostile countries.”

“It is the unpopular healthcare system in the U.S. which should be overhauled or replaced by a new one,” the report said.

“However, they released the false report, finding fault with the advantageous healthcare system in the DPRK in a bid to hurt the prestige and dignity of the DPRK in the international arena and stir up ‘ill feelings’ in society,” it said.

This report is 55 pages long and the portions on North Korea (listed above in full) barely fill two pages.  I am not sure why the North Korean’s chose to draw attention to it by complaining in KCNA.  

You can read the Yonhap story here:
N. Korea condemns U.S. intelligence report on its combat ability
Yonhap
1/24/2009

From Wikipedia:

PyongSu Joint Venture Company, Limited is a pharmaceutical company jointly founded in 2002 by Pyongyang Pharmaceutical Company in North Korea and a company headquartered in Hong Kong which is a market leader in pharmaceuticals distribution and contract manufacturing in Asia. The corporate headquarters of PyongSu are in the Songyo district in Pyongyang. PyongSu started trial production in 2004 and, as of 2005, engaged in manufacturing mainly painkillers and antibiotics. At the end of 2006 the foreign-invested stake was sold to another investor. Felix Abt, the 3rd managing director (or president) managed to avoid the closure of the company by turning the heavily loss-making operation into a profit-making one. PyongSu became the first North Korean pharmaceutical factory to reach GMP (a universally recognized quality standard in the pharmaceutical industry as defined by the WHO), repeatedly inspected and confirmed by the WHO. It also became the first ever North Korean company to participate in tender competitions and to win contracts against foreign competitors from China, India, Germany and elsewhere. With an increasing cash-flow generated by itself, the company has even become able to buy and profitably operate pharmacies and other sales outlets in the country. Towards the end of 2008 managing director Felix Abt explained that the company now enjoys 1) a portfolio of products made by itself including an anti-helmintic and an anti-hypertensive drug that meets the patients’ needs well 2) a good reputation as a quality and service-minded company in the DPR Korea and the recognition as the “model company” of the domestic pharmaceutical industry. 3) a good market penetration thanks to wholesaling (that includes a variety of complementary products at affordable prices imported directly from reliable GMP-manufacturers) and its own profitable retail outlets (i.e. pharmacies) and 4) a healthy growth (including a high amount of orders on hand for 2009), sustainability and profitability.

Click here to read a recent interview by Mr. Abt in Interview Blog.

Interview Blog
How a hopeless pharmaceutical joint venture was turned into a success story, why and how humanitarian aid and economic development mostly follow conflicting interests, how foreign business people challenge and survive an environment overshadowed by heavy geopolitical influences including arbitrary sanctions imposed by foreign powers, how North Korean managers prepare themselves to get fit for export and international competition, and what the dos and don’ts are for those who want to successfully start a business in this very special country.

(click here for other North Korea-related interviews)

Klaus-Martin Meyer: Felix Abt, you came as country director for the ABB group to North Korea in 2002 where you have been resident since. ABB closed its representation just about 2 years after your arrival but you have successfully been involved in a number of other businesses since then. What happened?

Felix Abt: At the time the Swiss-Swedish ABB, a global leader in power and automation technologies, not only faced huge asbesto claims in the United States but also large debts versus a tiny equity that culminated then into a matter of life or death for the group. To survive it decided to immediately save 800 million USD cash expenses, making the closure of a number of factories and offices around the globe unavoidable.

Though we at ABB Pyongyang fully covered our cost through sufficient sales with a good margin the funds and other resources necessary to set up the planned joint ventures I had been negotiating, however promising they may have become, were definitely not available any longer. In addition the pre-contracts I secured for ABB – including one for a 9-digit USD infrastructure project I signed at the dismay of the competitors in presence of the Swiss foreign minister, the Swedish ambassador and the North Korean minister of power and coal industries – would have required even more substantial funding. Given ABB’s critical financial condition that I, far from the headquarters, grew aware of only later, neither ABB could have provided this in the form of supplier credits nor commercial banks in the absence of sufficient export risk cover nor institutions like the Asian Development Bank or the World Bank from which North Korea remained excluded as a member due to US and Japanese opposition.

It led ABB to shut down its country representation. The speculations put into circulation suggesting political rather than economic reasons or the failure of its local business operation for the shutdown were all wrong. ABB’s case also drew more attention than it deserved because this company and British tobacco giant BAT were then the only multinational groups active with resident expatriate staff in North Korea.

After the closure of ABB’s offices I continued to work in Pyongyang as an agent for ABB and added other firms to a strategic agency portfolio which comprised first-rated companies in promising key sectors like mining (e.g. Sandvik) and light industries (e.g. Dystar). On behalf of the companies represented by me I realized multi million USD sales in the following years. I was also involved in setting up mining operations.

Klaus-Martin Meyer: From heavy involvement in infrastructure and mining business to raising a North Korean pharmaceutical factory to world standard – how come?

Felix Abt: The PyongSu Pharma J.V. Co. Ltd. in Pyongyang is the first pharmaceutical joint venture between North Korean and foreign investors and the largest operational European investment at present. The foreign investors that had been holding the majority equity stake sent first a Philippino production pharmacist to Pyongyang to build up and run the joint venture. After he had been in Pyongyang for some time he decided some day not to return to Pyongyang from a holiday. The project suffered a setback and got stuck until a second one from Germany was found who stayed some years until he decided to retire. Both of them were excellent production experts and successfully set up and run pharmaceutical operations elsewhere before. And yet, PyongSu’s situation still looked desperate when the second one left and when I was asked to become managing director and the third one to, so to speak, try his luck: A WHO-sponsored international inspection had just come up with 75 objections, rejecting Good Manufacturing Practices (GMP) acknowledgement, a universally recognized production quality standard in the pharmaceutical industry as defined by the WHO. In addition from being far from reaching the necessary standards, the company had no sales but only expenses, large quantities of Aspirin and Paracetamol nearing their expiry dates were stockpiled at its warehouse, and last but not least both investors, unwilling to give the company any more support, and staff were discouraged and they had little confidence left in the company’s future.

Having had the unique chance of getting to know North Korea and gaining, unlike other foreign business people, a pretty good insight and understanding of the way business is done here during the previous years of my stay thanks to my multi-faceted business activities and having worked and survived for a large multinational pharmaceutical group as country director and regional director before in no much less challenging places in the Middle East and in Africa, I thought I should dare it. At the beginning I felt really lonely in the belief that PyongSu had a fair chance of succeeding and many told me straightforward I was a day dreamer. But already recognizing the impressive potential of the Korean staff when I was a member of the board of directors before taking over as chief executive and the ability to recruit more of the industry’s best talents I believed that with proper management that included coaching and training in all business aspects good results were achievable.

The results of the new approach are quickly told: PyongSu did become the first North Korean pharmaceutical factory to reach international GMP-level confirmed by the World Health Organisation. It also became the first ever North Korean company to participate in tender competitions and to win contracts against foreign competitors from Germany, China, India, Thailand and elsewhere. With an increasing cash-flow generated by ourselves, we have even become able to add significant value to the company by buying and profitably operate pharmacies and other sales outlets in the country.

Being recognized as a model pharmaceutical company PyongSu has, at the request of the government, also made itself socially useful by sharing know-how with other pharmaceutical companies to help raise their standards.

Klaus-Martin Meyer: You have been the initiator and the first president of the European Business Association (EBA) in Pyongyang, the equivalent of a European chamber of commerce. What was the motivation for its foundation and what has been the result of it so far?

Felix Abt: I always felt that there are plenty of misconceptions about North Korea and the way business is done here. Not only was the country underreported and often misunderstood but when Western media did report about it they tended to repeat old, mostly negative stereotypes. Thus, I saw a need to provide the business world with more accurate information, ideally by competent business people on the ground themselves. I also thought an entity should be created that could serve as a bridge between European and North Korean enterprises to accelerate investment and trade between them and to break the isolation the country was pushed into by the powers who have been trying to overthrow it ever since the DPRK or, in full, the Democratic People’s Republic of Korea (North Korea’s official denomination) was founded 60 years ago. I also thought it could some day become a welcome medium for European businesses and North Korean authorities to hold dialogues in order to learn to understand one another’s problems, concerns and thinking which would strongly benefit both sides. I could, by the way, also imagine a larger meeting and communication platform not just limited to few European businesses but open for enterprises around the globe interested in investing and doing business in North Korea.

Since its foundation the EBA Pyongyang made some headway into the direction described before. However, my presidency was marked and overshadowed by an avalanche of arbitrary economic and financial “sanctions” imposed on the host country which kept me busy to find ways and means to keep (legitimate) business going.

As things have stabilized and as we have learnt how to deal with obstacles to our businesses in the meantime and, last but not least, in order to save time for existing business projects as well as new business opportunities in North Korea and Vietnam including those your readers may approach me with I decided a few months ago that I would no longer be available as president or committee member for a second several-year-term.

But having closely experienced Vietnam’s economic adjustment process and the way it so successfully attracted foreign investment where I have been living and working for many years before I moved to Pyongyang I would still be prepared to spend time and share experience and know-how with the competent North Korean authorities should they be interested in it.

Klaus-Martin Meyer: One of the many hats you are wearing is the one as director of the Pyongyang Business School. Is capacity building for enterprises a better alternative to sending rice bags in order to prevent hunger and starvation in North Korea?

Felix Abt: Let me explain you first that with the exception of Sweden and Switzerland all European countries, invited by the North Korean government to do development projects in North Korea, have refused to do so until now for political reasons (following largely US-policies) and provide only humanitarian assistance, particularly in times of disaster. It is mainly the United States plus European and certain Asian countries that have been donating rice and other food items instead either directly or through the World Food Programme (WFP) each and every year for more than a decade and they are continuing to do so. This not only allowed donors to get a glimpse into North Korea through the eyes of WFP-food distributors but it also created a culture of dependency which I suspect was not entirely without political intentions by the donor countries and which economists and development experts claim to also have prevented necessary economic adjustment measures that would have allowed the DPRK to get on its own feet faster.

Recently, for example, I saw that an NGO bought a large quantity of cookies fortified with vitamines in China with taxpayers’ money from a European country for malnourished kids in North Korea. They thought that European hygiene, safety and quality standards of food items can be met in China but not in North Korea. Instead of helping the North Korean food companies with some capacity building reach these standards they were in fact undermining the efforts that the North Korean food processing industry is undertaking to catch up with the rest of the world. How do these do-gooders imagine that domestic factories can thrive and feed their workers and their families if they place their orders with competing industries just across the border? I can illustrate my point also with PyongSu’s example. Some organizations like the WHO and the IFRC have supported and sincerely honored PyongSu’s efforts to reach international quality and safety standards and competitive prices. They were fully aware of the fact that by purchasing quality pharmaceuticals made in the DPRK they would help raise the quality and safety of pharmaceuticals and save additional lives! And yet there are still many NGO’s and countries that prefer to buy pharmaceuticals to be donated abroad rather than from us, directly undermining efforts of PyongSu and the rest of the North Korean pharmaceutical industry to reach and maintain high international standards. This proves that there is a lot of politics, self-interest and hypocrisy involved in what I would call the foreign aid industry which literally beats the domestic manufacturing industry.

A former country director of the Swiss governmental Development and Cooperation Agency (SDC) and I thought food security could only be established by promoting adequate economic development leading to increasing income in domestic and hard currency, job creation etc. Since, of course, we would not have been able to mobilize finance for the upgrading of the infrastructure, or to buy spare parts and raw materials for enterprises, we thought that a very cost-effective means of helping North Korean companies is capacity building for senior officials and managers to enable them to make the best out of their existing enterprises and to prepare them to get fit for export and international competition.

I made a concept for approval by the sponsor SDC and the DPRK-government and then I started organizing the business school seminars (including some essential elements of an MBA-course) with lecturers from different countries with an outstanding theoretical knowledge and practical international experience. Having gained a good idea of the state of North Korean enterprises, their environment and a fair understanding of the needs of their managers when doing business with them I was not only able to select the most suitable lecturers but also brief them in such a way as to have their lectures tailored to the students’ real needs – something other foreign economic training organizers have failed to do. The students at the seminars are North Korean senior officials and company executives. It was therefore not surprising that they expressed great satisfaction with what they learnt and with the practical benefits they drew from it for their businesses. Since SDC did not pay my work and my expenses during the first two years I was not only a co-initiator but also a co-sponsor. In addition I could convince some large foreign companies to send senior executives and experts to hold seminars in Pyongyang at their own expense.

Western media like The Financial Times were quick at speculating that we were about to challenge the socialist system but that, of course, is non-sense. It’s very simple: If a country, regardless of whether it is capitalist or socialist, wants its enterprises to successfully export they need to get to know and apply the corresponding marketing tools. Or irrespective of whether an enterprise is privately or state-owned it needs to have a strategy and a business plan. So the company managers have learnt such basics at our seminars and, to stay with the example, know that if they fail to plan they plan to fail.

This year most of the lecturers have been coming from Hong Kong. They have an academic teaching background and, in addition, international management experience of 20 years on average. A further asset they have, and that’s another reason why I have chosen them, is that most of them also built up subsidiary companies in mainland China on behalf of Western companies. Thus, they are not just teaching knowledge acquired from books but have a lot of highly useful hands-on experience and are also well aware of the different business worlds and of the very different economic, cultural and political aspects in East and West, which is essential to know when interacting with businesses of other countries. Needless to say that they can understand and empathize with North Korea better than European and other Western lecturers who would have to overcome much more than just a wide geographical distance.

Klaus-Martin Meyer: With your unique and large wealth of experience in North Korea what do you recommend to business people who want to start a business in North Korea.

Felix Abt: This is your toughest question since it would take me at least a full evening to give some really useful reply.

Perhaps I would summarily try to answer that if you want to understand why and how certain companies succeed you have to know first why certain other foreign companies fail. Those who fail are quick at blaming North Korea, its system and so on, and, of course, never recognize their own shortcomings.

But it’s worthwhile having a closer look at them to learn how to avoid costly errors. From my observations these are the five main causes of their failure:

- lack of basic knowledge of the country due to a lack of due diligence (no or little home work done before traveling to Pyongyang)
- advice by ignorant and/or biased advisors and sponsors (all advisors belong to this category to at least a certain extent)
- choice of random, suboptimal business partner based on a recommendation (see above) rather than a systematic selection (i.e. asking for a range of alternative business partners from which to choose the most suitable one)
- no identification of a leverage for a long-term joint venture (e.g. lasting technological advance, ownership of unique loyal customer base etc.)
- appointment of unsuitable project manager (with lack of technical and/or social and/or cultural competence as well as lacking patience, stamina and flexibility and/or a background difficult to accept for the North Koreans)

A larger number of Chinese but also some European business people have successfully started businesses in North Korea in recent years. Readers of yours may join the growing foreign business community and I wish them good luck and success, too!