North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No.10-01-08-1
2010-01-08

North Korean authorities appear to be closing regional, large-scale wholesale markets, one after another. According to the latest newsletter from the North Korean human rights group Good Friends (January 6), “Based on a Cabinet measure passed on December 30 of last year, North Korean authorities will suspend operations management of the Sunam Market in Cheongjin [LOCATION HERE] from the end of this March, effectively deciding to close [the market].”

Like the South Pyeongan Province Pyeongseong Market [LOCATION HERE] reportedly closed last year, the Sunam Market, North Korea’s representative wholesale market, was built less than five years ago. Good Friends reported that provincial authorities from North Hamgyeong Province plan to raze the market, located between Chumok and Cheongnam neighborhoods, and build a modern park and residential housing.

The newsletter revealed, “More than 40 percent of Cheongjin residents rely on the Sunam Market to maintain their lifestyles, and if the market is closed, there will be considerable consequences,” and added that those who trade in the market or rely on it for their shopping are already worried about how they will continue to put food on the table if the market gets shut down.

It has also been reported that the Chupyeong Market [LOCATION HERE], in the Sapo district of Hamheung City, South Hamgyeong Province, will also be closed. The Chupyeong Market, which attracts as many traders as the Pyeongseong Market, apparently specializes in the wholesale trade of imitation goods. Good Friends explains that the Chupyeong Market is a very busy and crowded market, with many shoppers coming and going, and this has also led to an increase in scams, thefts and other crimes. It is anticipated that following the closing of the Sunam Market early in the year, the next move authorities make will be to shut down the Chupyeong Market, as well.

A directive has been issued that North Korean authorities are to ban the sale of manufactured goods in the country’s permanent markets, and that all goods are to be sold only in state-sanctioned retail stores, and at state-set prices. However, sources inside the North report that traders are gauging the attitudes of local authorities, and often not turning over their goods for sale in retail stores. This, along with the North’s currency reform and ban on foreign currency, as well as the increase in farmers’ wages, has led to huge increases in exchange rates and prices.

Currently, workers in state-operated enterprises are being paid anywhere from 1,500 won to as much as 5,000 won per month. With the currency revaluation, this is considerably more than they were making before, but taking into account the massive increases in prices, as well, the impact of the higher wages is negligible.

Choson Ilbo
1/6/10

North Korea’s currency reform has apparently failed to tame inflation. The state has paid the first salaries since the shock currency reform late last year, with the State Security Department and the Ministry of Public Security, the frontline agencies dedicated to protection of the regime, paying soldiers 6,000 won each — 3,000 won in average monthly pay plus a 3,000 won bonus.

Soldiers usually received about 3,000 won in the old currency. That this effectively doubled means the currency reform, which exchanged old won for new at a rate of 100:1, has not been able to stop inflation.

Money is also apparently being distributed to workers on collective farms, who had a hard time last year because they failed to raise vegetables and other produce from their own patches to scrape a living for their families due to the “150-day struggle,” a campaign aimed at spurring them to work harder at farms.

According to recent defectors, cooperative farms distributed more than 100,000 won to each household in the new currency late last year to settle accounts and distribute profits. Workers at state-run enterprises were also given 1,000 to 2,000 won each, even though most of their operations are suspended.

One Korean Chinese, who visited Pyongyang recently, said, “Department store shelves are stacked with goods that the state confiscated from market traders in return for nothing on Jan. 1, and they are selling those goods at prices readjusted at the exchange rate of 100 old won for one new won. Huge crowds rushed to buy them, so they ran out of stock immediately.”

But commodity prices skyrocketed. Inflation is soaring as market traders are hoarding goods, anticipating that the real value of the new currency will plummet. According to a North Korean source, 1 kg of rice cost about 30 won right after the currency reform but is now closing in on 1,000 won. The U.S. dollar was exchanged at the rate of 75 won to the greenback right after the currency reform but soared to 400 won in late December. There is speculation that it is now only a matter of time before the rate will reach 3,000 won, the same as the unofficial exchange rate of the old won.

Market traders are angry as they have realized that they were robbed of nearly everything they earned. A former senior North Korean official said, “The latest currency reform is more cruel than the previous reform in 1992. It’s tantamount to the state confiscating 99 percent of people’s money.”

Authorities have been handing out food rations in Pyongyang and other regions since December, but North Koreans already know that the food cannot last them more than a month or two. Urban residents are experiencing particular hardship.

Daily NK
Jung Kwon Ho
1/4/10

According to sources within North Korea, citizens have been mobilized to produce fertilizer and ordered to submit scrap materials for use by the state in an attempt to bring to fruition the New Year’s Statement, in which light industry and agriculture were promoted as the main frontiers for development in 2010.

One source from North Hamkyung Province told The Daily NK on the 3rd, “The first battle of this year began on the 2nd of January. A decree was issued, stating that each adult resident has to provide 50 kilograms of fertilizer to surrounding farms.”

He went on, “Middle school students of 11 and above have to provide 30 kilograms of fertilizer to their school, and any senior citizen over the age of 60 has to provide 30 kilograms of fertilizer to their neighborhood office. This fertilizer production battle will continue until the end of March”.

This is an unusual duration, the source explained, “The annual fertilizer production battle is normally completed on February 15th, but this year the authorities are emphasizing the importance of agriculture and, as a result, declared the completion date to be the end of March.”

“The production of fertilizer is an annual event, however, its target volume and duration has doubled. The lack of available fertilizer has already initiated competition between workplaces to secure access to public toilets and dumping grounds.”

A different source in Yangkang Province explained how things were being done there, “Middle school students over the age of 15 up to adults under the age of 60 have to provide fertilizer privately to surrounding farms by sled. Students from 1st to 3rd grade in middle school and senior citizens over the age of 60 have to provide the fertilizer to a neighborhood location designated by municipal committees of the Party.”

According to the same source, the temperature in Hyesan was -26C on the 2nd when workers from each workplace and factory, and residents of people’s units, assembled in the square in front of the Kim Jong Suk Art Hall to transport the fertilizer by sled to nearby farms in Chun-dong, Geomsan-dong and Wun-dong, and to Hwajeon Cooperative Farm, causing problems.

The source explained that the farms were up to 16 kilometers away, so, “Numerous people suffered from frostbite during the transfer.”

In addition to production of fertilizer, each workplace and organization received instructions to submit scrap metal, paper, rubber and vinyl. On this topic, the source commented, “Residents are making a hoo-ha about the requirement to submit unused materials for light industry like scrap metals. During the vacation in January, each middle school student is supposed to produce fertilizer and provide ten kilograms of scrap metal plus five kilograms of scrap paper and rubber to a designated depot. When such tasks are completed, the student gets a certificate from the depot and then has to show it to school.”

The source concluded, “Residents are already concerned about the possibility of increased compulsory mobilization even worse than that for the 150-Day Battle last year.”

According to the Choson Ilbo:

Around 30,000 foreign laborers live in the camps on Reem Island. They come from all over the world, including Pakistan, Bangladesh and China. The North Korean laborers live in a part of the camp 400 m from the entrance. “Money was pretty good about three to four years ago, but now it’s tough to find work,” said one North Korean worker.

Around 1,300 North Koreans work in Abu Dhabi and Dubai, according to sources. Altogether around 6,000 North Koreans work in the Middle East, 3,100 of them in Kuwait. Some 800 work in the UAE and Qatar, with another 300 in Oman and 250 in Yemen. North Korea has been sending workers to construction sites in the Middle East so they can earn hard currency to send back to their impoverished country.

The movement resembles the exodus of South Koreans who came to the Middle East in the 1970s and ’80s to work at construction sites, but the main difference is that the North Korean government takes away the money its workers earn there. When asked about their wages, one North Korean worker said, “A lot of us have many years of experience working overseas as carpenters or welders and make between $150 and $200 a month, which is about the same as the Pakistanis make.” But those wages are what the workers keep after they have made their “loyalty” payments to the North Korean government.

One source in Abu Dhabi said, “North Korean workers make between $300 and $500 a month, but the North Korean government confiscates $150 and even $250 as loyalty payments, leading to a lot of conflict.” North Korean labor export companies skim off an excessive amount of money from salaries. The level of discontent recently prompted the North Korean government to dispatch security agents who trawl construction sites on weekends to provide ideological “cleansing” sessions to workers.

Since the construction industry in the Middle East fell into a slump due to the global financial crisis, North Korean workers have been resorting to other means to make money. The most common method is bootlegging in Abu Dhabi, where alcohol is banned. But that is a criminal offense that carries to two to three months in prison and deportation. “The North Korean companies that sent the workers abroad are aware of the bootlegging but are turning a blind eye as long as the laborers pay portions of the profits,” one local source said.

Some North Koreans leave the construction sites and work as handymen or build fountains for private homes. In August, a North Korean worker was deported after wandering into the home of a high-ranking police officer. “There was an incident early this year where a North Korean agent brought home a worker who was caught making critical comments about the North,” a local source said.

Additional Information:

1. Here is a link to the full story excerpted above.

2. Here is the approximate location of the North Korean workers’ camp in the UAE.

3. According to IFES:  North Korea established ambassador-level diplomatic ties with the United Arab Emirates on September 18, [2007]. A joint statement said the two countries aim to “enhance understanding and boost the links of friendship and cooperation between their two peoples.” Ties with such an oil-rich nation on friendly terms with Washington could be significant as the North moves to dismantle nuclear facilities.

4. This story highlights a strange DPRK-UAE-Unification Church connection.

4. Here is a link to a similar story about North Korean loggers working in Russia.

5. North Korean workers were recently deported from the Czech Republic.

Daily NK
Jung Kwon Ho
12/24/2009

The North Korean authorities apparently started paying farmers as of the 16th, starting with Migok Collective Farm in Sariwon, North Hwanghae Province.

In North Korea, the amount of work each farmer does is calculated and expressed in a numerical value, which is called “labor grade (노력공수).” After the harvest has been gathered, the state’s requirement is handed over, and then farmers are distributed food according to their labor grade, while surplus cash is also supposed to be distributed dependent upon a farmer’s labor grade and the profits of the farm as a whole.

Around the time of the July 1st Economic Management Reform Measure in 2002, cash was distributed in this way, but between 2005 and 2008 there was nothing.

For office and factory workers, payment began on the 17th at approximately the level of the July 1st Economic Management Reform Measure.

A source from South Pyongan Province reported to The Daily NK on the 23rd, “From the 16th, they started delivering cash to those farms which fulfilled the state’s grain production plan. For other farms, which could not accomplish the state’s plan, the authorities gave a subsidy.”

Since some collective farms have received an unusual amount of cash, it has become the talk of the town. In the case of the Migok Collective Farm in Sariwon, an average of 150,000 won per farmer was paid in cash.

Kim Jong Il conducted an onsite inspection of Migok Collective Farm in October, and it is considered a model case because it exceeded its state production target. Hence the unusually generous payments.

Farmers working for the Ryongyeon Collective Farm, which also achieved the state’s plan, got around 100,000 won each.

Despite this apparent state generosity, the source pointed out, “This cash distribution covered only those farms which accomplished state production targets. Since this year’s farming went sour, there are less than ten farms that achieved their targets across the whole country.”

Collective farms which failed to achieve the state’s goals got just 5,000 won per worker.

“This cash distribution seems to be just a one-off measure to straighten out the confusion after the redenomination and to soothe farmers,” the source also asserted.

Regardless, the cash will slow the entry of food into the markets, the source pointed out, saying, “This cash distribution and subsidies will make food circulation difficult in the short term.”

“When farmers do not hold any cash in their hands, their grain flows into the markets. For the time being farmers will not sell rice and food in the market because they have enough pocket money. It causes rising food prices.”

Additionally, the North Korean authorities still have not announced state prices since the redenomination, and they continue to heavily regulate the market. Therefore, food traders are watching the market situation without selling any food.

The logical market principle, that when harvested grain circulates in the market food prices go down, may therefore not hold true this year, and vulnerable classes’ will become more food insecure as a result.

However, the authorities are trying to assure farmers that there will be continuous measures to give them further benefits.

According to the source, “more benefits for farmers” implies a revised grain procurement policy.

He explained, “Until now, the authorities purchased rice for 20 won per kilogram from the farm and sold it for 45 won to the people. However, from now on, the procurement price will be 44 won and supply price to workers and the people will be 18-20 won.“

Institute for Far Eastern Studies (IFES)
NK Brief No.09-12-16-1
12/16/2009

In accordance with the recent currency reform in North Korea, new state-controlled prices were officially announced on December 9. South Korean NGO ‘Good Friends’ announced on December 13th that rice is now selling for 23 won per Kg, corn at 8 won per Kg, flour at 22 won per Kg, pork at 45 won per Kg and ‘matnaegi’, a common flavor-enhancing food additive, is selling for 45 won per bag. Other prices were also listed per kilogram, including crushed maize at 12 won, corn noodles for 10 won, soybeans from 9-13 won, soybean oil for 50 won, radishes at 5 won, artificial meat for 15 won, and cowpeas for 10 won.

On December 4, the Choson Sinbo, a newspaper printed by the pro-North Korean General Association of Korean Residents in Japan (Jochongryeon), reported that North Korean authorities were planning to lower prices to the same level as was seen when the July 1, 2002 Economic Management Reform Measure was enacted.

At the end of November, prior to the currency reform, rice was selling for 1,850 won in Hamheung, 2,000 won in Cheongjin, and 1,700 won in Pyongyang and Sariwon.

In the markets of these four major cities, corn averaged 737.5 won/Kg, flour was sold for 1,687 won/Kg, and pork was 5,450 won/Kg. Pork is the only item now being sold more cheaply, while the price of all other goods went up with the currency reform.

A source inside North Korea has reported that most market traders are not following government pricing guidelines, however, and that the majority of goods are being sold at even higher prices than Pyongyang has set. In the market in Cheongjin, North Hamgyeong Province, rice was being sold for 50 won/Kg, and corn went for 18 won/Kg, more than double government prices. These high prices appear to reflect supply shortages and hoarding.

After the currency reform was announced, North Korean miners received raises, from a basic monthly wage of 6,000 won to the equivalent of 8,000 (pre-reform) won. Miners in North Hamgyeong Province can now put enough food on the table without needing second jobs. On December 4, the Choson Sinbo also reported that the government has guaranteed that living expenses distributed by factories will be distributed in the new currency.

NOKO Jeans are finally for sale on their web page here.  However they include a not-so-subtle warning to American shoppers:

Important regarding ordering from the USA: at this time, goods of North Korean origin may not be imported into the United States either directly or indirectly without prior notification to and approval of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). You need to apply for this in order to import goods produced in North Korea. Contact OFAC here: http://www.treas.gov/offices/enforcement/ofac/. It is the buyer’s responsibility to get this approval.

OFACS is the same outfit that is supposed to go after you if you visit Cuba.  I am not recommending you do so, but it semes to me that it would just be a lot easier to have a friend in Europe order them for you…

Read previous NOKO posts here.

I thank a reader for pointing out an interesting article in the Korean Political Science Association Journal which contains a plethora of qualitative data on the North Korean labor Market–survey data from a cross section of defectors.

Here is the citation:

Park, Young-ja, “‘Marginal Work’ and ‘Labor Market’ in North Korea after the 2003 General Market System”, Korean Political Science Association Journal Vol. 43, No. 3, September 2009

Read the full article here, or here.

Institute for Far Eastern Studies (IFES)
NK Brief No.09-11-23-1
11/23/2009

Companies in the inter-Korean joint Kaesong Industrial Complex (KIC) have recorded a growth since North Korea abolished restrictions on traffic to and from the complex, as well as on the number and length of visits by South Korean workers.

According to the South Korean Ministry of Unification, companies in the KIC recorded September exports worth 3.42 million USD, 21.5 percent higher than the 2.82 million USD-worth of goods exported in September 2008. From May 2008 to July of this year, KIC exports were lower than the previous year every single month, but finally showed a 29% jump in August, the first time in 15 months. The increase in the value of the complex’s exports was helped by exports of machinery and household electrical appliances now being produced there.

There are currently 116 companies operating in the KIC, but according to the Ministry of Unification, at the end of September there were only 40,848 North Korean laborers working there, and the problems revolving around hiring more workers are clouding future prospects for the complex. As there are only around 40,000 North Korean workers living in Kaesong City and the surrounding area, it appears that the KIC cannot currently accommodate any new businesses. This poses a dilemma for the 18 construction projects currently underway, and puts on hold another 105 projects that have been allotted land within the KIC, but have not yet begun construction of any factories.

Furthermore, despite the fact that managers in the KIC are trying to maintain a sense of stability in order to attract further orders, if the North decides to close the door on friendly policies, the beginning of next year could see a reversal of the growth. The KIC is, at best, enjoying an ‘uneasy peace.’

KIC officials say that the primary issue at the moment appears to be whether roads to and from the complex will be constructed and whether the inter-Korean agreement reached during the Roh Moo-hyn administration to provide dormitories for 15,000 workers will be implemented. According to a survey of businesses, companies already in operation and/or under construction want to hire an additional 26,000 workers. However, with the current government closely linking the North Korean nuclear issue with inter-Korean relations, the road and dormitory construction, which would cost tens of millions of dollars, would have to be based on progress toward denuclearization, the likelihood of which, at this point, is cloudy.

The incumbent government also seems to put more weight on maintaining the current, relatively stable state of things in the complex than on further developing the group project. One problem they are working to solve is that officials managing the KIC are now prepared to rent out space in one ‘apartment-style factory’ in which many different companies operate production facilities under one roof, but are having difficulties finding willing clients, while current tenants complain about close quarters and a lack of space.

Korea Business Consultants has published their October 2009 newsletter.  You can read it here.

Here is the newsletter table of contents:

COVER
– China eyes DPRK’s mineral wealth
– SinoMining acquires 51% of DPRK’s Hyesan Copper Mine
– Transformation and Modernization of North Korea
– DPRK sees peace pact with US as key to disarmament
– US “willing to engage DPRK directly”
– “DPRK Energy Sector Assistance to – Accompany Progress in… Discussions”
– Billy Graham’s son visits DPRK to deliver aid
– Lang visits Seoul

ECONOMY
– DPRK vows to expand trade
– China poised to give substantial aid
– DPRK films looking for joint producers

INTER KOREAN
– Buddhists from south, north call for reopening of Mount Kumgang tour
– Kaesong factory recognized for quality
– Frayed relations hindering development of mineral resources
– ROK aid to north falls
– Lawmakers call for use of rice surplus as DPRK aid
– Farmers demand rice price stabilization

POLITICAL
– Kenya establishes diplomatic relations with DPRK

CULTURE & SPORTS
– Eriksson to coach DPRK?
– DPRK’s Hong battles for gold at World Gymnastic Championships
– DPRK begins preparations for World Cup

KOREA COMPASS
– Mangyongdae
– Korean Proverb