North Korean Economy Watch

North Korea does not publish economic data.  The size of North Korea’s economy is estimated by South Korea’s Central Bank (Bank of Korea), the US Central Intelligence Agency (CIA), and other think tanks such as the Sejong Institute (Lee Jong Seok). 

According to a recent report by the Bank of Korea, North Korea sufferd its second full year of economic contraction (as defined by GDP), 1.1% in 2006 and 2.3% in 2007.  The bank estimates North Korea’s 2007 gross national income (GNI/GNP) at $26.7 billion, per capita GNP at $1,152 (assuming population of 23 million).  If you are interested in knowing the difference between GNP and GDP, click here.

Here are some highlights from the report:

Agriculture, forestry & fisheries marked a 9.4% decrease following a 2.6% decrease in 2006

Mining increased 0.4% in 2007, down from 1.9% increase in 2006

Manufacturing increased 0.8%, higher than 0.4% 2006 increase. -1.7% growth in light industry, due to the decrease in food products and beverages. +2.3% growth in heavy industries led by expansion of metal and machinery products.

Electricity, gas & water production increased 4.8%, (+2.7% in 2006), from hydroelectric and steam power generation.

Construction production -1.5%, (-11.5% in 2006), from reduced non-housing construction and civil engineering.

Services +1.7%, (+1.1% in 2006). Hotel, restaurant, transport, post & telecom industry expanded.

Trade volume (goods) fell 1.8% to $2.941 billion, 1/248 South Korea’s. Exports fell 3.0%, imports fell 1.3%.

These estimates are based on trade figures obtained from the Korea International Trade Association, Korea Trade and Investment Promotion Agency, fuel and food aid figures from aid groups such as the International Red Cross and the World Food Program, as well as information provided by frequent visitors.

More information here:
Full report by Bank of Korea  and data (recomended)

North Korea’s Economy Shrank in 2007, Second Annual Contraction
Bloomberg
Heejin Koo
6/17/2008

UPDATE: Although the Daily NK originally reported stellar growth rates in 2008 for Hyundai’s North Korea projects, today the Choson Ilbo highlights that profits are still elusive:

According to the Financial Supervisory Service on Sunday, Hyundai Asan suffered a net loss of W9.64 billion (US$1=W1,041) in the first quarter this year, three times greater than the W3.34 billion in the corresponding quarter last year.

Despite the large number of tourists, which, at 125,000 as of mid May this year, nearly doubled since last year, it is the largest loss reported since the tours to Mt. Kumgang began in 2004. Over 45,000 people have traveled to the North Korean city of Kaesong since the tour program began in December 2007, and it is almost certain that the company would reach its goal of 100,000 tourists for this year.

So what is the explanation given for this?

The reason for such struggle is the weakness of the won against the U.S. dollar, since North Korea charges admission fees to Kaesong and Mt. Kumgang in dollars — US$ 100 for one and $80 for the other per person for three days and two nights. As the dollar has risen more than 10 percent since the beginning of the year, from W940 to W 1,040, so has the initial cost. The tour program to Kaesong has reportedly gone into the red already. Moreover, Asan has to pay off $200 million of North Korean foreign debt in return for the license to develop Mt. Kumgang granted in 1999.   

ORIGINAL POST
From the Daily NK:

According to the Ministry of Unification, despite the stalemate between North and South Korea, cooperation and exchange at the civilian level have increased rapidly in the months of January to April compared to the previous year.

Compared to the same period last year, North-South trade increased by 37% (corresponding to USD 410.099 million the same period last year) and the coming and going of people and the tour of Geumgang Mountain increased by 144% and 76% respectively, contributing to a significant rise in civilian cooperation and exchange.

Related to the North-South trade, following the expansion in economic cooperation, commercial transactions (regular trade + processing of brought-in materials + economic cooperation) increased by 53.3% (to USD 531,960,000) compared to the same period last year (USD 346,990,900). Only, uncommercial trade decreased by 53.8%, recorded at USD 29,570,000 according to the reduction in aid to North Korea.

69 enterprises are operating in the Kaesong Industrial Complex as of April 2008 and 44 of them seem to be constructing factories. It is anticipated that 100-some enterprises will be operating by the end of the year.

The first quarter production volume increased 71% or by USD 6,770,000 compared to the same period last year. The export amount declined 58% to USD 13,280,000. The total number of North Korean workers is 26,885 and South Korean sojourners 1,018, the latter rising by 52.6% from the previous year, despite the evacuation of South Korean personnel.

The Mount Geumgang and Kaesong tours, compared to last year, are maintaining a huge growth rate. The number of Mt. Geumgang tourists have increased 76% to 100,510 and the Kaesong tour, which began in December of last year, logged 40,525 visitors thus far.

The number of coming and going of people, excluding the Mt. Geumgang and Kaesong Complex tourists, increased by 144% within the year to 93,019 and such a growth rate seems to have originated from the hike in visitors related to economic cooperation and North-South trade as well as the Complex itself. Only, the number of visitors related to aid to North Korea was reduced from 2,935 to 1,129.

Although the increase in tourism numbers was expected, the positive spin put on the Kaesong Zone contradicts earlier reports.  

Read the full stories here:
North and South, Politics at a Stalemate, Economic Cooperation Is Bright
Daily NK
5/14/2008
Jeong Jae Sung

Hyundai Asan Losses From N.Korea Tours Mounting
Choson Ilbo
5/19/2008

From the Korea Times: 

North Korean officials are reportedly interested in signing a deal to export textile products to Wal-Mart, a U.S. corporation that runs a chain of large, discount department stores, Radio Free Asia (RFA) reported Friday.

Wal-Mart is one of the largest retailers in the world, with an estimated 20 percent market share of the retail grocery and consumables business in the United States. The company relies on an extensive overseas outsourcing and subcontracting system, particularly with Chinese manufacturers.

Tony Namkung, senior advisor to New Mexico Governor Bill Richardson, recently returned from his trip to North Korea where he met with senior North Korean officials, the report said.

He said the North Korean government has high hopes for the lifting of economic sanctions, the Trading with the Enemy Act and the terrorism-sponsoring list, according to the report.

Namkung said North Korean officials seriously talked about the possibility of economic cooperation with U.S. companies. They mentioned the possibility of exporting North Korean textiles to U.S. retail stores, specifically mentioning Wal-Mart. The officials reportedly told Namkung that they were hoping Wal-Mart could come in with a textile quota.

He also said North Korea officials made references to exporting magnesite and working with U.S. mining companies to develop mineral sites. In the past few years, North Korea has sharply increased mineral exports to neighboring countries, including zinc exports to South Korea and China and gold exports to Thailand.

Read the full story here:
NK Seeks Textile Exports to Wal-Mart
Korea Times
5/16/2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-5-13-1

Small and mid-sized Chinese companies are now looking toward North Korea. The Chinese press reported on May 5 that the industrial union of Dungta, a small city of just over 500,000 located south of Sunyang in Liaoning Province, recently spent seven days looking into opportunities in the North on the invitation of the Choson Bongwha Company.

The purpose of this recent invitation appears to be that North Korea is looking to improve small and mid-sized industrial activity by allowing foreign entities to set up shop. The North was seeking investment for an oil paint factory, a textile factory, and a rolling mill. The Chairija factory in China’s Dungta City is planning to invest three million euros (aprox. 470 million won) to set up a paint manufacturing facility in the DPRK.

The reason Chinese businesses are looking toward North Korea is that even in China wages have been growing sharply, and as labor laws are amended it has become more difficult to hire employees, driving up production costs and lowering the competitiveness of exports. Cheap and easy labor in North Korea is turning the eyes of many Chinese companies.

The importance of this latest visit by the Chinese industrial representatives was reinforced by the invitation by the Choson Bongwha Company, which specializes in commission-based textile production. This appears to be related to the North Korean authorities’ plan of boosting the standard of living throughout the country by hosting Chinese heavy industries. Recently in the North, companies have joined in partnerships with Chinese businesses to manufacture lighting and cigarettes, showing that Chinese businesses are also interested in enhancing their presence in North Korea’s domestic market.

Just as South Korea’s small and medium-sized businesses have turned to China in order to stay competitive, now Chinese companies are eyeing North Korea’s cheap labor force in order to maintain their edge.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-4-4-1
4/4/2008

As smuggling scrap metal across the DPRK-PRC boarder has become widespread among North Korean residents lately, police are investigating the illegal trade, leading to the arrest of all of the residents in the border region that were involved in the smuggling. On April 1, the Daily NK quoted a source inside North Korea reporting that a group was arrested while transporting six tones of scrap metal to smuggle out to China via the highway connecting Yanggang Province’s Kabsan Town and Hyesan City, and subsequently imprisoned.

Those arrested were from ‘Unit 8’, an office in Hyesan under the direction of the People’s Trading Bureau regional office tasked with delivering and selling gold, food, oil and other goods in China and returning with materials needed in the North.

According to the source, “An order was handed down by the central government at the beginning of March to ‘come down hard on those scrap metal smugglers’, and the police and security force investigation is ongoing.” The source went on to report that in the Kumsandong Fertilizer Factory in Hyesan, “everything metal that wasn’t bolted down is gone, and only the walls of the factory remain…in the future [authorities] will punish scrap metal smugglers severely.”

It appears that scrap metal smuggling began to become popular in 2004, but these days, in the border areas, starving soldiers are using military vehicles to buy scrap metal from regions further from the border, then selling them in the Hyesan-Jangbaek border region. In the Yanggang and North Hamkyung Regions of North Korea, famine first spread in the mid-1990s, at which time emerged the presence of smugglers who quietly amassed copper, aluminum, nickel, and other metals and sold them in China. In response, North Korean authorities attempted to crack down, using public firing squads as a deterrent, but as border guards were in the pockets of smuggling residents of the border region, they became implicated in the cross-border illegal trading, and the crack downs became effectively useless.

Acheon Global Corp.  has obtained the exclusive right to use the Ryongnam Ship Repair Factory in the western port city of Nampo

The right to enable the firm to gain domestic and overseas investment in its ship repair and steel-structure manufacturing businesses in North Korea, Acheon officials said.

According to KCNA (12/29/2006), the site has been recently refurbished:

The Ryongnam Ship Repair Factory of the Democratic People’s Republic of Korea has been reconstructed on an expansion basis. The factory successfully constructed a large dock, three wharves to repair big cargo ships, a combined repair workshop, an acetylene generating workshop, oxygen generating workshop, a heavy oil power plant, a wind and solar power station over the last four years.

The newly built Dock No. 2 can repair several ships of tens of thousands of tons simultaneously.

The repair processes are automatized and controlled by computer. There are in the dock a horizontal jib crane, gantry crane and general control room. It is divided into the main sluice, operated by computer, and the middle one.

The combined repair workshop which covers the floor space of over 17,000 square meters specializes in making ship-body pipes while repairing propellers and power system.

The acetylene generating workshop does not produce any industrial spent water.

The wind and solar power station turns out stabilized electricity for the general control room, dwelling houses and cultural welfare facilities. Its expansion on a modern basis has consolidated the material and technical foundation for developing water transport.

Read the full article here:
Local firm to use N.K. ship repair yard
Yonhap
3/23/2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-3-27-1
3/27/2008

The latest issue of the North Korean publication “Economic Research” (2008, issue no. 1) highlights the need to restructure North Korea’s trade system in order to meet the demands of the capitalist market. The journal quotes Kim Jong Il as saying, “[We] need fresh improvement, in our own manner, of the basic Socialist economy’s trade system of yesterday, meeting the current demands being faced due to the capitalist market.”

Therefore, the journal stresses, “As the socialist market crumbles, and given the demands of the capitalist market as [our] focus shifts to overseas economic relations, what is currently needed for the development of overseas trade is improvement of our own style to the trade system that can ensure large profits.

The journal goes on to recommend that, in order to meet these new demands of the international capitalist market, “the most important thing is improving the import-export system based on the foundation of an self-reliant national economy.” It states that raw materials should not be sold as-is, but rather should be turned into processed goods and then sold, that goods popular on the international market should be manufactured for export, and that niches should be chosen in which North Korean goods can dominate the international market.

However, the journal also says, “If individual offices trade with capitalists outside the scope of government controls, ‘reform’ and ‘opening’ sought by the imperialists would occur, and the nation’s economy could liberalize and capitalize…International trade must take place orderly under the uniform control and guidance of the nation.”

The journal asserts that even though a variety of offices are engaged in trade, they must first receive government permission, follow government guidelines, and operate in a government-created environment. The central government must standardize prices and designs of selected export goods from each trading company.

Reuters has a write up of my favorite North Korean beverage, Taedonggang Beer:

North Korea’s quest to produce decent beer began in earnest in 2000 when it started talks with Britain’s Ushers brewery about acquiring its Trowbridge, Wiltshire plant that had ceased operations.

The North Koreans took apart the brewery that had been producing country ales for about 180 years, shipped it piece by piece to Pyongyang and reassembled it under the banner of its Taedonggang Beer Factory.

By April 2002, it was up and running. In June 2002, the North’s leader Kim Jong-il, known for his fondness of expensive brandy and wines, went on a brewery tour.

“Watching good quality beer coming out in an uninterrupted flow for a long while, he noted with great pleasure that it has now become possible to supply more fresh beer to people in all seasons,” North Korea’s official KCNA news agency said.

Taedonggang beer, named for a river that runs through Pyongyang, is a full-bodied lager a little on the sweet side, with a slightly bitter aftertaste.

Still not the choice of locals:

Taedonggang is one of several brews in North Korea and it has quickly become the top brand, according to foreigners living in the reclusive country.

Park Myung-jin, of distributor Vintage Korea which used to sell the beer in the South, said the North’s leader Kim wanted a showpiece brewery.

“They used the best quality material without thinking of the production cost,” Park said. He stopped selling the beer in the South in 2007 due largely to a sudden price hike.

The North taps into overseas markets for ingredients, Park said. It has abundant supplies of fresh water because its hobbled factories do not produce enough to cause pollution problems.

Beer is not the drink of choice for most North Koreans, who prefer cheaper rice-based liquor that packs a big punch.

Dont expect to see it in your local pub:

But do not expect to see Taedonggang or any North Korean beer invading overseas markets any time soon.

North Korea may have solved the riddle of making a robust beer but it has not completely solved the problem of bottling it.

The brewery has occasional trouble sealing bottles properly and the glass it uses is fragile.

The transport system in North Korea is also a mess, making it unlikely that the beer can become one of the few legitimate exports from a country shunned by the developed world for its defiant pursuit of nuclear weapons and a human rights record cited by the United States as one of the world’s worst.

The full article can be found here:
North Korean beer: great taste, low proliferation risk
Reuters
Jon Herskovitz
3/9/2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-3-3-1
3/3/2008

In the latest issue (February 3rd) of the DPRK Cabinet bulletin, “Democratic Chosun”, it was reported that the first extended cabinet meeting of the year opened in the beginning of February, with Premier Kim Young-il presiding. The bulletin stated that the issue of accomplishing this year’s economic plans was discussed.

At the meeting, Vice Premier Kwak Bum-ki stressed that accomplishing this year’s economic goals was “essential for opening the doors to a breakthrough for building an economically strong nation,” and that it was the “fundamental task laid out before the Cabinet.” He went on to reveal the tasks and directives needed to revitalize all realms of socialist construction, which he stated was necessary to create a powerful and prosperous nation by 2012, the centennial anniversary of the birth of the late Kim Il Sung.

In particular, he called for the production of the “lifeline of socialist construction”, and specifically, electricity, coal, metal, and railways, which he referred to as the “four lines for the advance of the people’s economy.”

Accordingly, the goal of carrying out overwhelming repairs to power generation facilities, and at the same time constructing new power plants in order to increase electrical production capabilities by several hundred thousand kilowatts, was proposed.

The meeting also stressed the need for concentrating efforts on geological exploration and exploitation industries in order to reasonably development and use natural resources, for a change in production of goods necessary for daily life, and for a resolution to the people’s ‘eating problem’ alluded to in the recent New Year’s Joint Editorial.

The bulletin also reported that there was discussion on creating a new five-year plan for the development of science and technology, going as far as to say, ”the role of science and technology in the building of an economically powerful nation is decidedly large, and in order to answer the very real calls for development, [the issue of] strengthening international economic projects” was brought up.

Premier Kim Young-il, Vice-Premier Kwak Bum-ki, Chairman Kim Kwang-rin, of the Committee on National Planning, Park Nam-jil, of the Power Supply Industry Bureau, and Kim Yong-sam, from the Railways Bureau, were among cabinet ministers present.

At its height, North Korea’s socialist infrastructure was responsible for the vast majority of the people’s standard of living.  Ration coupons and large purchases (such as for a car or refrigerator) were all provided through one’s employer.  This is because society was vertically integrated, with state-owned companies and ministries providing a broad array of social services that are handled by a variety of agents in a capitalist society (food, housing, education, childcare, health care etc..). There was little room for markets, or even prices, in people’s lives.

Although this system only worked for North Koreans in large urban areas, and excluded those in smaller villages and the country side who were much more dependent on themselves, for the vast majority of North Koreans today that system (or social contract) is a distant memory.  Out of fiscal necessity it has been chiseled away over the years, and as a result the scope for individual entrepreneurship in both the public and private spheres is increasing.  I do not want to give the impression that capitalism is running wild, but when compared to the past, the control of the North Korean state over the lives of its people is diminished.

One practice which has been retained to some degree, however, is the distribution of gifts or special provisions on the birthdays of the two leaders, Kim il Sung and Kim Jong il.  The scale of one’s gift, however, allegedly depends on one’s rank in society.  A common farmer might get a new pair of socks.  A senior Worker’s Party official probably receives a good deal more.  One estimate puts the value of these special gifts at USD$20m. 

The origins of these gifts are mixed.  Some are donated by foreigners.  Some are imported by the leadership.  Others are made domestically by the people themselves.

According to a story in today’s Daily NK, creeping marketization - bringing with it an increase in price and quality discrimination,  has left many North Korean consumers less than impressed with this year’s gift offerings:

A North Korean source in Shinuiju said in a phone conversation on the 17th, “When looking at the goods provided this time around, the quality has gone up as a whole in contrast to the past. However, the citizens did not attach too much significance to the ‘Great General’s gift’ as in the past.”

The source relayed the public sentiment as “Goods more valuable than his gifts are all over the place in the jangmadang. A portion of the people has said, ‘Special provisions are not necessary. Just do not regulate the markets.’”

In Shinuiju, a bottle of luxury liquor, 2kg of tangerine, and two pheasants were provided to the party organization through the “special provision’ and a bottle of liquor and a modest amount of fruits such as apples and tangerines were given to regular organizations. The People’s Units received a bottle of liquor, a toothbrush, and a bar of soap and pre-school and elementary school students received five pieces of gum, two rice crackers, two packs of chips, and one pack of candy.

The source added, “Those receiving the ‘title of hero’ and the Secretaries in charge of the county parties were given boxes marked with the label ‘gift,’ but its contents are uncertain.”

Another source in Hoiryeong in a phone conversation on this day said, “A bottle of liquor, a bar of soap, and a bottle of toothpaste were provided through the February 16th holiday provision and the children received a pack of candy, two packs of chips, a pack of pea candy, two packs of rice crackers, and seven pieces of gum.”

He also expressed discontent, saying, “It is pitiful to have to wait in line in front of the stores through which provisions are handed out for a mere bottle of liquor and soap.”

In the Hyesan, Yangkang Province region, laborers working at state enterprises were given 3kg of Annam rice (wild rice) and a bottle of liquor and oil were given to average households.

North Korea, in time for Kim Jong Il’s birthday in 2007, provided around 10 food items and daily necessities, including liquor and beer, cider and rice tally, oil, chips, and gum, to civilians.

In 2007, 200g of chips, 200g of candy, 100g of rice snacks, and five pieces of gum were given to elementary school students. Due to the shortage in foreign currency, special provisions were not offered to average civilians.

A caveat to this story is that all of the data points are from the large cities on the Chinese border.  These cities have benefited the most from trade with China and in all likelihood are the most “ideologically contaminated” in the DPRK.  

Source:
Jangmadang Goods Are More Valuable Than the General’s Gifts
Daily NK
Choi Choel Hee
2/21/2008