North Korean Economy Watch

UPDATE 9/16/2009: Despite the downward trajectory that business in the Kaesong Zone seemed to be taking this year, things appear to have bottomed out.  According to Yonhap, the Koreas have signed a Kaesong wage increase.  According to the article:

South and North Korea agreed to a 5 percent wage hike at a joint industrial park on Wednesday, the Unification Ministry here said, in the latest sign of inter-Korean projects returning to normal.

North Korea earlier demanded a 400 percent raise in monthly wages for its workers at the South Korean-run park in Kaesong, just north of the border.

South Korea’s management office in Kaesong “signed an agreement on a 5 percent wage increase” with its North Korean counterpart, ministry spokesman Chun Hae-sung said in a brief statement.

The North voluntarily withdrew its earlier demand last week in a striking shift from its unyielding attitude in four rounds of negotiations from April to July. The demand called for monthly wages be raised to US$300 from the average $70-80, apparently in retaliation against Seoul’s hard-line policy toward Pyongyang.

The Kaesong park opened in late 2004 as an outcome of the first inter-Korean summit four years earlier. It houses 114 mostly small-sized South Korean firms producing clothing, electronic equipment, kitchenware and other labor-intensive goods with about 40,000 North Korean workers.

The venture is seen as a much-needed source of dollar income for the North, which is currently under U.N. sanctions for its May nuclear test that bans cash flows to the country.

The 5 percent rate hike will increase the minimum wage to about $58 from the current $55.

Separately, North Korea was conducting a door-to-door survey on South Korean businesses at the joint park, said ministry spokeswoman Lee Jong-joo.

North Korea asserted that the two-day survey that continues until Thursday was to examine the firms’ output and “listen to their complaints and difficulties regarding tax and accounting,” Lee said. Such on-site surveys have been done sporadically, she added.

Although tensions might have eased, it remains to be seen whether the business community can be coaxed into making serious capital investments in the DPRK.

Read previous Kaesong Industrial Zone news below:

(more…)

According to the Choson Ilbo:

Italian customs recently confiscated 420 bottles of expensive liquor on their way to North Korea. Italian newspaper Vivere Ancona said customs in the eastern port city seized 150 bottles of brandy and 270 bottles of whisky in containers destined for North Korea at the end of last month.

The confiscation follows a UN Security Council ban on the export of arms, high technology and luxury goods to North Korea after the communist country’s nuclear test in May. The liquor is reportedly worth 12,000 euro, but the brands were not identified.

In July, Italian customs seized two luxury yachts worth W23 billion ordered by North Korea (US$1=W1,222). At the time, the order was disguised as coming from a Chinese company, but the investigation revealed it had actually been made by North Korean leader Kim Jong-il.

Here is a post about the yachts.

Here is a post about DPRK weapons seized by UAE.

Read the full story here:
Italy Seizes Luxury Liquor Bound for N.Korea
The Choson Ilbo
9/14/2009

UPDATE: According to Yonhap, Chinese and Australian ships were shipping the arms:

North Korean cargo carrying arms exports to Iran left a western port five days after Pyongyang’s nuclear test in May and was transferred aboard Chinese and Australian freighters before being seized by the United Arab Emirates (UAE) in July, according to an Italian company that handled the delivery.

Mario Carniglia, head of the international freight-forwarding firm Otim, said the containers, reportedly loaded with rocket launchers, detonators, and munitions, were shipped via the Chinese cities of Dalian and Shanghai and were transferred to an Australian vessel just after the U.N. Security Council adopted Resolution 1874 which bans the North from engaging in arms trade.

“(The containers) left the Nampo Port on May 30,” he said in a recent interview with Yonhap News Agency in Rome on Wednesday. A North Korean ship carrying the 10 containers arrived in Dalian two days later and a Chinese cargo ship moved them to Shanghai on June 13, he said.

“The containers were placed on (the Australian freighter) ANL-Australia in Shanghai,” he said, flipping through related documents.

The cargo was on its scheduled course until the UAE intercepted the ANL-Australia on July 22. The U.S. Navy had been focusing on trailing another North Korean vessel, the Kangnam 1, which appeared to be headed to Myanmar also carrying weapons exports.

The seizure was the first made under Resolution 1874 that calls upon all states to inspect cargo to and from North Korea if they have “information that provides reasonable grounds to believe the cargo contains” illicit weapons.

The Australian government said earlier, based on its own probe, that there were rocket-propelled grenades and other weapons in the seized containers, though Carniglia said his firm did not know the contents of the cargo.

He said North Korea provided documents identifying the content as “Oil Pumping Equipment.”

“We couldn’t see the contents as the containers were sealed when shipped from Nampo,” he said in the interview conducted in Italian. He refused to identify the exporter in North Korea, citing business ethics.

“All we were responsible for was handling the shipping from China to Iran,” Carniglia said.

He added that North Korea has not filed a complaint or asked for the return of the cargo, held at the UAE now for more than 50 days.

The UAE is reportedly in consultation with the U.N. sanctions committee on how to handle the seized shipment.

In a related move, the U.N. committee demanded an explanation from North Korea last month for the apparent arms export attempt.

The head of the North’s mission to the U.N., Sin Son-ho, sent a reply letter reiterating his country’s position that it is not bound by any U.N. resolution.

Sin also said that North Korea’s experimental uranium enrichment program is in a “completion phase,” claiming the country has made advancements in mastering an alternative route to producing nuclear weapons apart from its plutonium-based program.

ORIGINAL POST: According to Bloomberg:

The United Arab Emirates has seized a ship carrying North Korean-manufactured munitions, detonators, explosives and rocket-propelled grenades bound for Iran in violation of United Nations sanctions, diplomats said.

The UAE two weeks ago notified the UN Security Council of the seizure, according to the diplomats, who spoke on condition they aren’t named because the communication hasn’t been made public. They said the ship, owned by an Australian subsidiary of a French company and sailing under a Bahamian flag, was carrying 10 containers of arms disguised as oil equipment.

The council committee that monitors enforcement of UN sanctions against North Korea wrote letters to Iran and the government in Pyongyang asking for explanations of the violation, and one to the UAE expressing appreciation for the cooperation, the envoys said. No response has been received and the UAE has unloaded the cargo, they said.

…

he Security Council voted on June 12 to adopt a resolution that punishes North Korea for its recent nuclear-bomb test and missile launches through cargo inspections and enforcement of restrictions on financial transactions. The measure calls for the interdiction at seaports, airports or in international waters of any cargo suspected of containing arms or nuclear or missile-related materials going to or from North Korea.

According to the Wall Street Journal:

According to the Security Council diplomat, the weapons were carried on an Australian vessel, the ANL-Australia, which was flying under a Bahamian flag. According to an Aug. 14 letter sent to the U.N. sanctions committee, the exporting company was an Italian shipper, Otim, which exported the items from its Shanghai office.

“The cargo manifest said the shipment contained oil-boring machines, but then you opened it up and there were these items,” the diplomat said. ANL and Otim officials couldn’t immediately be reached to comment.

…

A spokeswoman for the Australian Department of Foreign Affairs and Trade said the Australian government is aware of the incident and is investigating to determine whether any Australian laws may have been broken.

The seizure could also raise fresh questions about North Korea’s intentions. After taking an aggressive stance against the West earlier this year, Pyongyang appears to have softened its rhetoric, releasing two captive American journalists and sending a delegation to meet with South Korea’s president.

Read more here:
UAE Seizes North Korean Weapons Shipment to Iran
Bloomberg
Bill Varner
8/28/2009

Cargo of North Korea Matériel Is Seized en Route to Iran
Wall Street Journal
Peter Spiegel and Chip Cummins
8/29/2009

According to Reuters (via the New York Times):

The United States moved on Tuesday to freeze the assets of two North Korean entities believed to be involved in atomic and missile programs, raising pressure on Pyongyang to resume disarmament talks.

Despite a recent charm offensive by North Korea, the State Department moved against its General Bureau of Atomic Energy, which oversees the nuclear program, and Korea Tangun Trading Corp, believed to support its missile programs.

Both were targeted under a presidential executive order that allows the White House to freeze the U.S. assets of people and entities suspected of developing weapons of mass destruction or the means to deliver them, including missiles.

“These designations continue U.S. efforts to prevent North Korean entities of proliferation concern from accessing financial and commercial markets that could aid the regime’s efforts to develop nuclear weapons and the missiles capable of delivering them,” the State Department said in a statement.

The action requires U.S. individuals, banks and other institutions to block the assets of the North Korean entities.

It was unclear whether either actually had any assets under U.S. jurisdiction but American officials said Washington hoped the move would discourage other countries from doing business with North Korea.

“Are we hoping for a spillover effect? Of course,” said one U.S. official.

These two organizations were targeted by the UNSC earlier this year.

Here is information and (links to information) taken by the US and UN in 2009.

Read the full story here:
U.S. Acts to Freeze Assets Of Two N.Korean Entities
Reuters (via New York Times)
9/8/2009

The BBC ran an interesting video story on North Korean loggers felling trees in Russia.  Of course this has been going on for a long time. However, this is the first video footage of the logging facilities that has appeared in the Western media.

According to the video, North Korea’s logging concessions are managed by a company called “Association No. 2,” which is housed in a compound in northern Tynda, Russia.  According to the story, Association No. 2 receives 35% of proceeds of logging (appx $7m) some fraction of which is repatriated to the DPRK’s Ministry of Forestry.  Using the video, I located the Association No. 2 compound on Google Earth. Here is an image:

(Click on image for larger version.  You can see it in Google Maps here.)

Additional Notes:

1. I have not been able to locate the other North Korean logging camps in Russia.  If any readers can find them, please let me know.

2.  The DPRK appointed a new Minister of Forests last October.

3. Bertil Lintner on North Koreans working in Russia.

4. Andrei Lankov on the loggers.

5. Claudia Rosette on the loggers.

6. YouTube video on NKs in Russia.

According to Bloomberg, North Koreans in the Chinese city of Dandong have slashed purchases of ham, shirts, and candy at UK-owned Tesco:

At the Tesco store, Zhao said fewer North Koreans are coming in, and they’re spending less. Most North Koreans can’t freely cross the border, and only those with the ability to travel abroad shop in Dandong.

“Before this year, they would buy over 10,000 yuan in goods, now they typically only spend thousands,” she said. (10,000 yuan is about $1,460.)

Shopkeepers working within sight of the Sino-Korean Friendship Bridge spanning the Yalu River that separates the countries said traffic is down by as much as half since May.

Fan Bo said he sells about 10 generators a month to North Korea, all to Chinese companies doing business there. “The North Koreans don’t need generators,” he said. “They don’t use electricity.” Mao Yifeng, a tire seller, blames the global financial crisis for the slowdown.

Over the course of half an hour on Aug. 12, two empty blue Chinese trucks crossed the bridge into Dandong. One diesel freight train, also Chinese, crossed to China from North Korea. The open door on one of its two cars revealed there was nothing inside.

Over 45 minutes the next morning, two empty trucks and three empty North Korean buses crossed into China. No trucks were seen heading into the North.

A souvenir salesman who only gave his surname, Huang, said he’s seen road and rail traffic on the Friendship Bridge fall by about half since North Korea’s nuclear test in May. “It was never busy, now it’s even less,” Huang said.

….Trade Aid

China is the North’s biggest trading partner. Its support for the regime can be gauged by the trade surplus it runs with the country, according to Nicholas Eberstadt, a Korea specialist at the American Enterprise Institute in Washington. That fell to $386 million in the first half of this year from $1.27 billion in all of 2008, as China’s imports of coal from North Korea hit the highest level in at least five years, China’s Ministry of Commerce data show.

“China is Kim Jong Il’s patron of last resort,” said Eberstadt. “If net transfers from China continue to shrink, it will be ‘back to the 1990s’ for North Korea. That can only be an alarming prospect for Kim Jong Il and his would-be successors.”

Official trade statistics, incomplete and not including goods smuggled by sea or across the 1,415-kilometer (880 mile) border, show two-way trade between China and North Korea fell 2.5 percent in the first six months of this year to $1.12 billion, according to China’s Commerce Ministry. Trade between China and South Korea during the same period was $67.6 billion.

Read the full artilce here:
North Koreans Spurn Tesco Ham as China Trade Withers
Bloomberg
Michael Forsythe
8/19/2009

China Daily reports on a North Korean restaurant in the Chinese border city of Dandong (hat tip to O.P.). According to the article:

Choe says she came to Dandong four months ago. Her restaurant is one of Dandong’s most luxurious and one of the few establishments in the Chinese city bordering the DPRK that is still seeing brisk business in the wake of Pyongyang’s nuclear test in May and subsequent missile launches.

The Korea Restaurant, is located near the only bridge linking Dandong and the DPRK, through which the Chinese army reached the DPRK and joined the Korean War in 1950. All of about 20 tables were full on the Saturday afternoon we visited recently, despite prices that are double that of common restaurants in Dandong serving the same food.

Some men from the DPRK in dark yellow or blue suits, with pins of DPRK leader on their chests, also dined there.

Choe’s colleagues, equally young and attractive, wait at tables in blue skirt suits and light makeup. They wear stylish, high-heeled shoes and watches, serving guests with smiles.

“The main reason for the restaurant’s good business is the DPRK waitresses. It’s the easiest way to meet people from that country,” said a taxi driver, surnamed Li.

“Though border trade has been slashed, more and more people are interested in the DPRK after the recent events. You can even see more Westerners here,” Li said.

Shan Jie, board chairman of the Dandong Federal Business Corp which runs cross-border trade, said the waitresses “are by no means common DPRK citizens”.

“They’re all children of DPRK cadres and graduates of Kim Il-sung University. They can speak Chinese, and are very talented in singing and dancing,” said Shan, who has conducted businesses with the DPRK for 16 years. Most of the DPRK cadres attend that university, he said.

The girls were sent to Dandong for training and will have “a promising future as civil servants” when going back home, Shan said.

“It’s a good opportunity for them to practice Chinese and meet Chinese people of all levels. Besides, they earn money for their country,” he said.

Pyongyang has many restaurants in Dandong, and many DPRK ministries such as the ministries of trade and security have their own restaurants there, Shan said.

Choe said the Korea Restaurant is of the same restaurant chain as Beijing Pyongyang Begonia Flower Restaurant, a famous luxury Korean restaurant said to be run by a DPRK merchant with a military background.

When asked whether she is the daughter of DPRK officials, Choe switched to speaking in Korean with a colleague before ending the conversation.

“The girls here mostly work for one and half years I’ll stay for about three years,” Choe said.

“Dandong is pretty and people here are quite nice. But I will go back to my country, Pyongyang is the most beautiful place in the world.”

If any readers in Dandong could help identify where these restaurants are, I would appreciate it.  I would like to mark them on Google Earth and Wikimapia.

Read the full article here:
DPRK waitress in China shares a day in her life
China Daily
Li Xiaokun and Wang Huazhong
8/14/2009

According to Reuters:

South Africa’s arms control body has authorised an arms exhibit for North Korea and the possible sale of weapons to Iran, Syria and Libya which should be investigated, the main opposition party said on Tuesday.

The Democratic Alliance said a number of “dodgy” deals had “slipped through the cracks” when South Africa’s National Conventional Arms Control Committee (NCACC) last met in 2008.

David Maynier, a Democratic Alliance MP and shadow defence minister, said the NCACC had authorised a marketing permit for a South African-based company in the past three years to demonstrate and exhibit military support equipment for North Korea.

“The military support equipment was radar warning receivers used on antennae for submarines,” he told Reuters. Maynier declined to name the company but said it had exhibited the equipment “within the last three years”.

The NCACC was set up in 1995 to ensure arms trade and transfer policies conformed to internationally-accepted practices.

Maynier urged South African Justice Minister Jeff Radebe, the new head of the NCACC, to urgently investigate the alleged arms transactions with North Korea and other states.

Neither Radebe’s spokesman nor the official government spokesman were immediately available for comment.

Read the full article below:
South Africa arms body allows North Korea exhibit
Reuters
8/5/2009

According to KBS Global (h/t Rokdrop):

Pakistani media have reported on the local North Korean embassy’s alleged involvement in smuggling and illegal exchange of foreign currency.

The Karachi-based Daily Sharafat Karachi said local intelligence authorities reported to Pakistan’s Foreign Ministry that some of North Korean’s embassies and legations abroad were involved in smuggling and illegal foreign exchange transactions.

The intelligence report claimed Pyongyang’s embassy and its economy and trade mission conspired with local smugglers to illegally import liquor and other items from various locations including Dubai.

It said containers disguised as diplomatic pouches for the contraband items and that local customs agents were also involved.

The Pakistani foreign minister has called on the Karachi customs and the intelligence agency for a thorough investigation into the matter.

North Korea’s embassies self-finance their operations on revenues earned in their host countries.  They receive little-to-zero operating funds from Pyongyang.  This incentive structure is interesting from an economic perspective.  Sometimes it generates interesting results like this.  Unfortunately it also generates outcomes like this.  End the end, some diplomats just do not make good businessmen.

Of course, if Pakistan has erected trade and currency laws that make life difficult for honest business persons, which would not surprise me since it ranks just ahead of Yemen in economic freedom, the North Koreans might actually be doing the people of Pakistan a favor by bringing some competition into the market.

The European Business Association has acted as a de facto chamber of commerce in the DPRK since its founding on April 28, 2005.  It was jointly founded by all of the European business representatives who resided in Pyongyang at the time, and according to its press release (posted below in full), it aims to “build bridges” and increase trade between Europe and the DPRK.

Recently, a video of this founding was posted on Youtube.  You can see it here:

Click on image for video.

The EBA is now run by Nigel Cowie.  Here is their web page.

Here are previous posts about the EBA.

Here is the press release that was issued at the time:

Press Release by the European Business Association (European Chamber of Commerce), Pyongyang, on the occasion of its founding ceremony on April 28, 2005.

All of the foreign business people who are resident in the Democratic People’s Republic of Korea (DPRK) and who represent European enterprises have today jointly founded the European Business Association (EBA). The ten European, one Hong Kong and one Mongolian business managers include the heads of four European invested joint ventures (in banking, overseas shipping, pharmaceuticals production and consumer goods manufacturing) in the DPRK and the representatives of several medium- and large sized European companies.

During a short founding ceremony the EBA-members approved the statute and elected Felix Abt, resident chief representative of a large European manufacturing and trading group, president, Guenter Unterbeck, resident chief representative of the German enterprise that introduced and operates internet in the DPRK and Valentin Dimitrievich Pan, resident chief representative of the Russian railways, vice-presidents.

As a representative of the European embassies to the DPRK the Romanian Charge d’Affaires Eugene Poppa took to the floor to underline the significance of the association designed to lay the ground for both European and North Korean companies to do business with one another more smoothly in the future.

Acting Chairman Kim of the Association for the Promotion of the International Economic and Technological Exchange (APIETE) as well as chairman Jang of one the largest manufacturing and trading groups of the country expressed their welcome on behalf of DPRK enterprises to this new association to substantially further economic ties between European and Korean enterprises.

EBA-president Abt stressed the need for European companies to catch up with Chinese and other Asian companies. In fact, out of the total DPRK foreign trading volume of 3.11 billion USD in 2003 over two third was mainly with China and to a much lesser degree with South Korea and Japan according to the South Korean government. The trade with the EU accounted for less than 10 %. In 2004 foreign trade with China increased by 35,4 %.

Although the European Union increased its exports in the first 6 months of 2004 by 17,2% to 132,0 Mio. USD and its imports by 11,3 % to 17,7 Mio. USD compared to the first semester 2003, Europe’s overall share is further declining.

In its press release EBA says it is pleased to note the sharply increasing interest of Chinese and other Asian companies in investing in and doing business with the DPRK.

It regrets the comparatively weak interest by European companies which is mainly due to a lack of awareness of the promising business and investment potential of the DPRK.

The EBA will therefore contribute to encourage European businesses to invest and do more business in the DPRK. It sees itself as a bridge builder between Europe and the DPRK to substantially increase trade between the two.

The members expressed their hope that the EBA will grow quickly in numbers over the coming years as a consequence of its work aimed at enhancing economic cooperation between Europe and the DPRK.

The event was attended by officials of the DPRK, senior managers of DPRK-companies and ambassadors and other diplomats of the European embassies to the DPRK including the ambassador of the Russian Federation. A visiting Polish business delegation headed by deputy minister Witold Gorski was also present. They mentionned that the first Polish joint venture in the DPRK is operating successfully.