North Korean Economy Watch

According to the Financial Times:

North Korea’s mineral wealth is receiving close scrutiny, with South Kor­ea’s government this week valuing reserves at $6,000bn (€4,070bn, £3,670bn). Encouraged by data on metals, Goldman Sachs last month predicted the economy of a unified Korea could rival Japan’s by 2050.

…

Trade with China is growing, reaching $2.8bn last year from about $2bn in 2007. But military authorities in North Korea are perceived as hostile to the changes in society and infrastructure that foreign investment could bring.

“If the North opens its mineral resources to foreign countries, that is tantamount to taking a military, social and political gamble, jeopardising their security,” said Lim Eul-chul, of Seoul’s Institute of Far Eastern Studies.

A South Korean diplomat closely involved with nuc­lear talks doubted Pyong­yang would allow China to make big investments inside its border. “They cannot permit that kind of influence,” he said.

Although they were long communist allies, North Korea and China have a mutual mistrust, partly tied to territorial claims.

Still, limited foreign investment in the sector is not impossible. Colin McAskill, executive chairman of Koryo Asia, says he has signed a letter of intent and memorandum of understanding to invest in North Korean metals and argues his model would not interfere with sovereignty issues that concern Pyongyang.

Switzerland’s Quintermina has posted reports on its website saying it is looking to extract magnesite in North Korea.

Chinese investors are believed to have some metals interests and are also involved in coal mining.

“The Chinese companies that have tried to do business in North Korea complain a lot that the regulations change frequently and that the power supply is erratic,” said a Chinese academic in Beijing.

One quote in this article struck me as a little off:

A South Korean diplomat closely involved with nuc­lear talks doubted Pyong­yang would allow China to make big investments inside its border. “They cannot permit that kind of influence,” he said.

First of all, China has already made plenty of investments inside the DPRK and the Chinese government and companies already exert influence.  There is a difference between having influence and being in control.  Secondly, China is the largest market for North Korean exports.  Even though they might not “own” the North Korean assets from which they purchase the goods, the North Koreans are limited in terms of who will/can trade with them.  In this sense China earns surplus through either bulk purchase discounts or monopsony power.

Read the full story here:
China eyes N Korea’s mineral wealth
Financial Times
Christian Oliver
10/6/2009

Radio Free Asia
Junho Kim
10/6/2009

North Korea is launching a crackdown on official corruption in its key mineral export sector, a crucial source of foreign exchange for a country where millions go hungry and the ruling party has total control of resources.

“[North Korea] is currently restructuring mineral exporting companies, because such trading entities have been found to be corrupt and inefficient and involved in various abuses,” said the China-based representative of a company importing minerals from North Korea.

The source added that many importers dealing with North Korean exporters had been negatively affected by their lack of professionalism and reliability.

“The overwhelming majority of North Korean trading companies are involved in exports of minerals, so the need to revamp them is evident and understandable,” the source said.

More than 58 percent of North Korea’s U.S. $1.13 billion exports in 2008 consisted of minerals and mining products.

The restructuring would target companies with unexplained gaps in their financial accounts and those that embezzled funds during the export process, the China-based source said.

Investigation slows exports

North Korea is a key source of magnesite, a mineral used in steel-making, synthetic rubber production, and the preparation of magnesium chemicals and fertilizers.

A China-based ethnic Korean businessman surnamed Nam said Chinese importers are having trouble filling orders for molybdenum, a metal used to make heat-resistant aircraft parts, electrical contacts, industrial motors and filaments.

“For about a month, discussions on imports of molybdenum from North Korea to China were suspended at the request of the North Korean authorities, who asked their Chinese counterparts to be patient and wait a little more,” Nam said.

In an attempt to further tap abundant mineral resources, the authorities are attempting a clean-up of the mineral export sector, the China-based source said.

Following an investigation of corrupt and inefficient mineral-exporting North Korean companies, export quotas might be assigned to such companies, and those found guilty of abuse could be imprisoned, the source said.

Swiss-based mining venture Quintermina was recently formed to secure magnesia materials from North Korea, the company said on its Web site.

It said the magnesite resources of North Korea, an extension of the magnesite-talc belt from the northeastern Chinese province of Liaoning, China, are estimated at 3 billion tons, and capable of producing around 100,000 tons per year.

*Note, this information was posted in 2009 and is now outdated.

ORIGINAL POST (2009-9-21): Swiss mining company Quintermina AG seems to have a stake in North Korea. According to their web page (Feb 2009):

IT’S ALL HAPPENING in the magnesia supply market. Further to last month’s lead news report on Russian magnesia supply breaking into the European market through a German trader (see IM January ’09, p.6), IM has learned that the considerable magnesite resources of North Korea are to be made available to the global market through Quintermina AG of Switzerland.

Although the company was unable to disclose details at time of press, IM can reveal that the new business is to facilitate supply of North Korean “competitive quality magnesia” for agricultural, industrial, and refractory applications.

The main focus is caustic calcined magnesia (CCM; low iron grade, agricultural grade, including 90200, 92200, 94200), and dead burned magnesia (DBM; including 9003, 9010), and later, perhaps fused magnesia (including 96%, 97% MgO).

Quintermina is headquartered in Chur, Switzerland, and is managed by David Coplet, who is also the Managing Director of Steinbock Minerals Ltd.

Details that are available in the public domain reveal that Quintermina is a joint venture between RHI and Coplet.

It would seem that RHI and Steinbock have formed a joint venture to secure magnesia materials from North Korea.

The magnesite resources of North Korea, an extension of the magnesite-talc belt from Liaoning, China, are considerable, amounting to some 3,000m. tonnes. Current production is in excess of 100,000 tpa DBM.

Sourcing magnesite from North Korea over the last few decades has been tackled by few, and even fewer have succeeded. Key challenges include lack of fuel and power supplies, basic infrastructure for freight, and modern technology, not to mention dealing with a very sensitive government.

However, Steinbock and its associates, notably the logistics company Yasheya Ltd, have a respected pedigree in dealing with North Korean minerals going back many years. Steinbock told IM that it has managed to regularly ship lots of 5-10,000 tonne CCM and DBM on a monthly basis over the last two years.

RHI, a leading refractories producer and consumer of magnesite, has made little secret of its intention to secure and invest in raw material resources worldwide (see IM October’08, p.6).

Outside China, North Korea stands out as the relatively untouched “Eldorado” of magnesite. Last month we reported “North Korea as an alternative [magnesia source] is looking no closer to coming to large scale commercial fruition.” Perhaps we are about to be proved wrong.

IM intends to publish a more detailed report on Quintermina in a forthcoming issue.

David Coplet of Quintermina will be speaking on Supply of magnesite from North Korea and China at MagMin 2009, 10-12 May 2009, Amsterdam – see p2&3. (PDF)

There is more information and pictures published from May 2009 here and here.

According to the Choson Ilbo:

A Chinese investment company developing a copper mine in North Korea with a North Korean company sanctioned by the UN Security Council has reportedly called an abrupt halt to the project.

An industry source in China said the investment firm sent a letter to NHI Shenyang Mining Machinery, the company it had commissioned to build facilities for the mine in Hyesan, North Korea, telling it to stop construction. An estimated 400,000 tons of copper are deposited there.

The Chinese firm had signed an agreement with (North) Korea Mining Development Trading Corporation (KOMID) [NKeconWatch: a.k.a. Korea Mining Development Corporation) to develop the mine in November 2006. But the North Korean partner was blacklisted by the UN Security Council after North Korea carried out its latest nuclear test.

The industry source said, “When Chinese Vice President Xi Jinping visited Pyongyang in June last year, he pledged full support for the development of the Hyesan copper mine so that it could become a model for investment by Chinese business in North Korea. This prompted NHI to hurry construction so that production could start in September this year.”

But he added the Chinese government apparently persuaded the investment firm to stop the project as Beijing takes part in the UN sanctions. “Otherwise, it’s unusual for a project to be stopped at this late stage,” he said. The investment firm reportedly gave NHI no reason for the cancellation.

Looking at Hyesan on Google Earth, this appears to be the only large-scale minig operation in Hyesan.

Read the full article below:
N.Korea Mining Project Buckles Under UN Sanctions
Choson Ilbo
7/31/2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-7-22-1
7/22/2009

According to a report released by the Korea Trade-Investment Promotion Agency (KOTRA), mineral products again topped the list of DPRK exports, accounting for 41.3 percent of goods sent out of the country last year. The KOTRA report, “2008 DPRK Trade Trends,” states that the North’s 2008 exports, totaling 1,130,213,000 dollars, increased by 23 percent over the 918.77 million USD-worth of goods exported in 2007.

With the exception of plastic and wooden goods, North Korean exports grew in all areas. Mineral products accounted for 41.3 percent; non-ferrous minerals made up 16.8 percent, textiles accounted for 10.6 percent; chemical plastics made up 7.6 percent; electrical and electronic machinery made up 7 percent; and animal products accounted for 3.6 percent.

Mineral goods were up 33.5 percent over last year, recording sales of 465.44 million USD. This sector has shown continuous growth over the last five years. In 2004, trade in these goods brought in 152.28 million USD; in 2005, 243.66 million USD; in 2006, 244.43 million USD; and in 2007, 349.58 million USD.

Since 2003, North Korea has concentrated on invigorating the light-industrial sector, and has emphasized the export of manufactured goods. However, last year, exports of mineral products and non-ferrous minerals combined to make up a total of 58.1 percent of all exports; the North has been unable to restructure its export sector or satisfactorily boost light-industrial manufacturing.

North Korea’s imports grew as well, to more than twice that of exports. Bringing in goods worth 2,685,478,000 USD, imports grew by 32 percent over the 2.023 billion in imports during 2007. In 2008, mineral products accounted for 25.9 percent of imports; fibers accounted for 11.9 percent; electrical and electronic machinery, 11.5 percent; processed food items, 8.8 percent; chemical and heavy industrial goods, 7.5 percent; and non-ferrous minerals, 6.6 percent. Import of fibers, processed food, and mineral products grew, while the import of animal products, vegetable products and automobiles fell.

Crude petroleum, the North’s largest import item, was imported exclusively from China, and was up 46.9 percent (414.31 million USD) over 2007 (281.97 million USD). However, due to the loss of other sources of fuel, overall imports of crude grew by a mere 1 percent.

Import of grains fell in 2008, recording only 86.24 million USD – a fall of 25.6 percent from the 115.86 million USD in grain imports during 2007. KOTRA explains that due to instability in the grain market, imports from China of rice and barley were halted in April, while corn imports were halted in August.

(Note: Here is the KOTRA web page.  It is not a user-friendly site and I was unable to find the report in English.)

North Korea doesn’t release official economic data.  Since 1991, the South Korean central bank has released its own estimates of the North Korean economy to fill the void.  Its figures are derived from information provided by the ROK’s National Intelligence Service and other sources.  The 2008 statistics can be downloaded here.

According to coverage by the Associated Press:

The North’s gross domestic product for last year was estimated at $24.7 billion, a 3.7% increase from 2007, Seoul’s Bank of Korea said in a news release. The impoverished North’s economy shrank 2.3% in 2007 and 1.1% in 2006.

The central bank said the North’s economic growth was mainly because of “temporary factors” such as favorable weather conditions that resulted in an increase in agricultural production, and the arrival of oil shipments under an international disarmament deal on its nuclear program.

The size of North Korea’s economy, however, was still about 2.6% of South Korea’s, the bank said, adding it was “difficult” to determine whether last year’s growth means the country’s internal economic conditions have improved.

The bank said the North’s agricultural production increased 10.9% last year compared with 2007. The production of coal, iron ore and other minerals expanded 2.3% and the manufacturing industry 2.5%.

…and BBC coverage:

Agricultural production rose nearly 11% in 2008 compared with 2007. And coal, iron ore and other mineral production grew 2.3% for the year.

UPDATE from Business Week:

The surprise underscores the tiny size of the North Korean economy, which could be easily swayed by such factors as weather and outside assistance. Just over two-thirds of the 3.7% growth came from the agricultural sector, and that is heavily dictated by weather. North Korea’s agricultural output increased by 10.9% in 2008 after falling by 12.1% in the previous year as it managed to escape from major floods and drought. Its 2008 manufacturing production also grew by 2.5%, compared with a gain of a mere 0.8% in 2007, thanks to heavy oil supplies by the U.S. and its allies as a result of Pyongyang’s agreement last year to begin dismantling its nuclear facilities.

Even as hope builds in South Korea about a recovery, with the U.S. and China showing signs of revival, prospects for North Korea’s economy are looking grimmer. North Korea’s nuclear test in May and the regime’s missile tests this year have led to an end to outside help and economic sanctions by the U.N. This heralds a poor performance in the manufacturing sector, which will almost certainly face an acute shortage of oil and electricity this year.

Pyongyang can’t count on the agricultural industry for any major contribution to economic growth in 2009, either. Even if North Korea manages to maintain the 2008 grain output of 4.3 million tons, which will be difficult to achieve unless last year’s exceptionally good weather is repeated, it won’t help the economy grow as it starts from a high base.

Those factors make North Korea’s economic growth last year an anomaly. “There’s no indication that North Korea’s growth engine has improved in any fundamental way,” says Bank of Korea economist Shin Seung Cheol. Even with last year’s extraordinary growth, North Korea’s gross domestic product was 1/38 of South Korea’s $935 billion and its trade volume was 1/224 of the South’s $857.3 billion in 2008. As long as North Korea’s reclusive leader Kim Jong Il refuses to open up his country, the gap is bound to keep expanding.

I have collected the most commonly referenced North Korean economic statistics here.

Read more here:
South Korea’s Central Bank Says North’s Economy Grew in 2008
Associated Press
6/28/2009

North Korea’s GDP Growth Better Than South Korea’s
Business Week
Moon Ihlwan
6/30/2009

UPDATE: IFES has contacted us with an update to this report:

“North Korea exports between 2-3 million tons of coal, collecting approximately 200 million USD.”

Original Post:
Institute for Far Eastern Studies (IFES)
NK Brief No. 09-6-9-1
6/9/2009   

The North Korean military, which has recently taken a hard-line position internationally with rocket launches, a nuclear test and inter-continental ballistic missile (ICBM) launch preparation, appears to be strengthening its position domestically, as well. It has reportedly taken charge of coal exports, previously the responsibility of the Cabinet, and other key economic interests.

According to sources inside North Korea, authority to export anthracite, the North’s most valuable export item, was transferred from a trading company under the control of the Cabinet to a military trading company earlier this year. North Korea exports between 200-300 tons of coal each year, collecting approximately two billion USD in foreign currency. Previously, this was shared among branches of the government, with the military, the Korean Workers’ Party and the Cabinet all similar export quotas.

One source stated, “Recently, China’s trade minister signed a contract for 60,000 tons of coal from a military-run trading company, and delivered one million USD-worth of corn as payment,” noting, “previously, North Korea’s trade partner [with China] was the Cabinet-controlled trade company.” The same source went on to note that it was “exceptional that as North Korea suffers from foreign capital shortages, it demands payment not in cash, but in corn…it looks like it is measure for military use.”

Other sources reported that, as of this year, the military has also taken control of the Bukchang Thermoelectric Power Plant, the country’s largest steam-powered electrical station. The Bukchang plant, built with Soviet supplies in 1968, can produce up to 2 million kW of electricity. It was formerly operated by the Ministry of Electric Power Industry, which is under the control of the Cabinet, but at the beginning of year, some authorities were purged on charges of bribe-taking and providing power designated for government facilities to foreign capital enterprises and other businesses. Since then, the military has run the plant.

The increased number of economic assets in control of the military reflects the military’s recently-strengthened position within the regime. The North Korean economy can be divided into several sectors: Kim Jong Il’s private fund, managed by Party operations; the military-industrial ‘second economy’; and the official economy, under the control of the Cabinet. The military’s increasing control over the official economy appears to be a move to completely implement ‘Military-first Politics.’

Writing in Reuters, Lucy Hornby and Tom Miles point out that the DPRK faces greater economic uncertainty from falling commodity prices than from new sanctions.  Below I have posted excerpts and charts:

Lower commodity prices may prove more painful to North Korea than the tightened sanctions, which will likely blacklist certain firms known to deal in military goods.

“Sanctions won’t have a big effect, they won’t change their actions,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing.

“There will be no impact on trade with China, which is mostly grains and basic materials … Sanctions may have some influence on luxury goods, but only a weak effect on overall trade volume.”

The isolated country’s $2 billion annual trade with China, equal to about 10 percent of the North’s annual GDP, is its most important economic relationship.

North Korea profited from strong prices for minerals and ores over the last few years, ramping up exports of zinc, lead and iron ore to resource-hungry China.

Most of those exports have dropped again since last summer, in line with sharp decreases in metals prices buffeted by the global economic crisis.

The North’s mineral deposits could be worth $2 trillion, according to an estimate by the South’s Korea Resources Corporation. But dilapidated infrastructure and a broken power grid hinder mining and the transport of minerals out of the country.

The irregular pattern of North Korea’s alumina imports implies that its smelter only runs in fits and starts. Other ore exports are equally ragged, possibly indicating that North Koreans are only digging the easily accessible ores.

Chinese companies that have tried to invest in North Korean mines complain of constant changes in regulations and report that the North tries to tie mining access to commitments to build mills and other industrial projects.

“China and North Korea are friendly neighbors and we will continue to develop friendly cooperative relations with North Korea,” Chinese foreign ministry spokeswoman Jiang Yu said on Tuesday after the North’s withdrawal from the six-party talks.

Diplomats’ expectations that China might use trade to influence its prickly neighbor rose when China cut off crude oil shipments in September of 2006, as North Korea prepared to test a nuclear bomb. It had tested ballistic missiles that July.

In fact, energy trade data shows that China is reluctant to apply trade pressure. Increased oil products shipments offset the brief cut in crude supplies in 2006.

“The imposition of these sanctions (in 2006) has had no perceptible effect on North Korea’s trade with the country’s two largest partners, China and South Korea,” wrote Marcus Noland, of the Washington-based Peterson Institute for International Economics.

Data since early 2006 show that Chinese crude shipments have in fact been overwhelmingly consistent, at 50,000 tons a month.

North Korea has imported very little Chinese grain since the 2008 harvest, reflecting the better harvest. Flooding and a disastrous harvest in 2006 and 2007 required heavy imports of grains from China in those years.

Chinese corn shipments to North Korea since August have dropped to 2,670 tons, from 136,595 tons in the previous twelve months and 32,186 tons in the year before that.

Rice and soybean shipments show a similar pattern.

Read the full story below:
Little leverage left for North Korea sanctions
Reuters
4/14/2009
Lucy Hornby and Tom Miles

Writing in the Wall Street Journal, Evan Ramstad offers some information on China’s investments in North Korea:

The diplomatic minuet is taking place after China increased trade with North Korea over the past four years. Last year, trade between China and North Korea jumped 41% to $2.79 billion, with most of that coming from increased exports by China.

 On Tuesday, truck traffic between the two countries resumed after a break Monday for a Chinese holiday. Dozens of trucks made the crossing in Dandong, a major city along the North Korean border.

China has been North Korea’s chief political and economic sponsor since the Soviet Union collapsed nearly 20 years ago. For much of that time, it served as donor of last resort, making up the difference when energy, food and donations to North Korea dropped off from other countries. That often amounted to $100 million to $200 million in aid.

China broke from that pattern in 2005 by boosting its exports and widening its trade surplus with North Korea. Outside experts view China’s trade surplus as the chief measure of its economic aid to North Korea because North Korea has no measurable debt instrument and little ability to narrow the trade gap.

Chinese companies, sometimes with help from the Chinese government, are investing heavily in North Korea’s mining industry, construction and light manufacturing such as textiles. Chinese consumer goods line store shelves and market stalls in North Korea.

Many executives of Chinese companies in North Korea say it’s a difficult place to operate. Among the challenges: getting money out of the country. China helped Panda Electronics Group, based in Nanjing, start a computer assembly factory with Taedong River Computer Corp. in North Korea five years ago.

North Korea’s currency, the won, can’t be converted. To move money out of the country, Panda must buy commodities in North Korea and sell them in China for cash, an executive said.

The increased business activity in North Korea reflects China’s desire to treat North Korea more as a “normal country” rather than a socialist brother entitled to unlimited assistance, scholars and analysts in China say. They say China also hopes its companies in North Korea will encourage the North’s government to open its economy as China began to do in the 1980s.

Wang Kai, a manager of Liaoning Fuxin Tianxin Technology and Development Co., says the company decided to build a pipe-making factory in North Korea because the country’s economy has few places to go but up.

“North Korea’s situation and economic status are pretty similar to China’s before the start of the opening up and reform policy,” Mr. Wang said in an interview before the rocket launch.

Others note China’s desire is to prevent North Korea’s collapse, which might pour refugees into China’s northeast.

The increased business is yielding a payoff in political influence for China in Pyongyang that’s become more important since North Korean dictator Kim Jong Il was incapacitated by illness in August. One signal that Mr. Kim was back in control came when he met in late January with a delegation of visiting diplomats from Beijing.

Read the full story here:
Economic interests shape Beijing’s Pyongyang Policy
Wall Street Journal Online
Evan Romstad
4/8/2009

North Korea Uncovered v.16
Download it here

The most recent version of North Korea Uncovered (North Korea Google Earth) has been published.  Since being launched, this project has been continuously expanded and to date has been downloaded over 32,000 times.

Pictured to the left is a statue of Laurent Kabila of the Democratic Republic of Congo.  This statue, as well as many others identified in this version of the project, was built by the North Koreans. According to a visitor:

From the neck down, the Kabila monument looks strangely like Kim Jong Il: baggy uniform, creased pants, the raised arm, a little book in his left hand. From the neck up, the statue is the thick, grim bald mug of Laurent Kabila (his son Joseph is the current president). “The body was made in North Korea,” explains my driver Felix. In other words, the body is Kim Jong Il’s, but with a fat, scowling Kabila head simply welded on.

This is particularly interesting because there are no known pictures of a Kim Jong il statue.  The only KJI statue that is reported to exist is in front of the National Security Agency in Pyongyang.  If a Kim Jong il statue does in fact exist, it might look something like this.

Thanks again to the anonymous contributors, readers, and fans of this project for your helpful advice and location information. This project would not be successful without your contributions.

Version 16 contains the following additions: Rakwon Machine Complex, Sinuiju Cosmetics Factory, Manpo Restaurant, Worker’s Party No. 3 Building (including Central Committee and Guidance Dept.), Pukchang Aluminum Factory, Pusan-ri Aluminum Factory, Pukchung Machine Complex, Mirim Block Factory, Pyongyang General Textile Factory, Chonnae Cement Factory, Pyongsu Rx Joint Venture, Tongbong Cooperative Farm, Chusang Cooperative Farm, Hoeryong Essential Foodstuff Factory, Kim Ki-song Hoeryong First Middle School , Mirim War University, electricity grid expansion, Tonghae Satellite Launching Ground (TSLG)” is also known as the “Musudan-ri Launching Station,” rebuilt electricity grid, Kumchang-ri suspected underground nuclear site, Wangjaesan Grand Monument, Phothae Revolutionary Site, Naedong Revolutionary Site, Kunja Revolutionary Site, Junggang Revolutionary Site, Phophyong Revolutionary Site, Samdung Revolutionary Site, Phyongsan Granite Mine, Songjin Iron and Steel Complex (Kimchaek), Swedish, German and British embassy building, Taehongdan Potato Processing Factory, Pyongyang Muyseum of Film and Theatrical Arts, Overseas Monuments built by DPRK: Rice Museum (Muzium Padi) in Malaysia, Statue de Patrice Lumumba (Kinshasa, DR Congo), National Heroes Acre (Windhoek, Namibia), Derg Monument (Addis Ababa, Ethiopia), National Heroes Acre (Harare, Zimbabwe), New State House (Windhoek, Namibia), Three Dikgosi (Chiefs) Monument (Gaborone, Botswana), 1st of May Square Statue of Agostinho Neto (Luanda, Angola), Momunment Heroinas Angolas (Luanda, Angola), Monument to the Martyrs of Kifangondo Battle (Luanda, Angola), Place de l’étoile rouge, (Porto Novo, Benin), Statue of King Béhanzin (Abomey, Benin), Monument to the African Renaissance (Dakar, Senegal), Monument to Laurent Kabila [pictured above] (Kinshasa, DR Congo).