North Korean Economy Watch

Koryo Tours has been busy. Below are three recent media hits the organization has received:

1. Yonhap recently published a long article on Koryo Tours founder, Nick Bonner.  You can read the full article here. In the article he discusses starting Koryo as well as the numerous other projects he has launched in the DPRK.

2. Bonner’s colleague, Simon Cockerell, recently did a podcast interview with the Korea Economic Institute.  The whole interview is worth listening to here.

3. Koryo Tours just sent out an email newsletter.  You can read it here.

You can read the full report here (PDF).

Since I am behind on numerous commitments at the moment, I am not going to write much about this.  However, the report’s contents have been widely covered:

1. North Korea Tech (Martyn Williams) and here.

2. Reuters

Pictured above (Google Earth): The KEDO light water reactor construction site in Sinpho County, South Hamgyong Province.  See in Google Maps here.

 According to Yonhap:

An international consortium once tasked with building two power-generating nuclear reactors in North Korea will soon demand that the communist country provide US$1.89 billion in compensation for the project’s failure, a Seoul official said Monday.

The demand comes after North Korea filed its own compensation claim worth some $5.8 billion in September, saying it suffered heavy financial losses and other troubles from the failed project.

In a 1994 deal linked to North Korea’s promise to denuclearize, the Korean Peninsula Energy Development Organization (KEDO), which includes South Korea, Japan and the United States, agreed to build two 1,000-megawatt light-water reactors in the communist country within several years.

After years of delays due to poor funding and other problems, the project fell through in 2006 after the U.S. caught North Korea pushing a second nuclear weapons program based on enriched uranium in addition to its widely known plutonium-based one.

The $4.2 billion project was about 35 percent complete when the KEDO called it off.

“Ever since the project fell through in 2006, the KEDO has sent a request to North Korea each year, demanding compensation for its breach of the agreement,” the government official said, requesting anonymity. “North Korea gave no response, and its sudden claim for compensation is completely unacceptable. The KEDO plans to send an official reply in the coming days.”

The latest development comes as diplomatic efforts are under way to revive the stalled six-party talks on ending North Korea’s nuclear weapons programs. Pyongyang is pushing for an unconditional reopening of the multilateral negotiations it walked away from in April 2009, while Seoul and Washington insist that the communist country first demonstrate its sincerity toward denuclearization through such pre-steps as a monitored shutdown of its uranium enrichment program.

The forum, which offers economic and political aid to North Korea in exchange for its denuclearization, also involves Japan, China and Russia.

The Korea Times also reported on this story.

Read the full story here:
Power consortium to demand $1.89 bln from N. Korea over failed energy project
Yonhap
2011-11-14

From the Choson Exchange web page (November 5):

In October 2011, John Kim, a board director of the Choson Exchange, visited the Rajin-Sonbong Special Economic Zone. The following is a summary of some of his findings based on site visits and talks with senior officials in the SEZ. An longer account of his travels and impressions will be available soon. This information helps elaborate on our report from August.

Rajin Port
The Rajin Port employs 1400 workers. The Chinese have conducted feasibility tests regarding two new piers, but currently the port houses three piers with 9-9.5 meters draft. A 30,000 metric ton coal storage warehouse was built at Pier 1 by the Chinese, who moved 80,000 metric tons through the facility in five shipments from January to September. Pier two, largely dedicated to container shipment, is currently dormant and a Swiss company is currently using Pier 3 to ship manganese and talc out of the region. The Russians also have a 49 year lease agreement signed in 2008.

Oongsang [Ungsang] Port
Oongsang Port exported Russian lumber until 1985, but remains largely quiet now except for the occasional fishing boat. The present draft of 7 meters constricts any major future activity, so the North Koreans hope to bring in over $100M to widen the draft to 9 meters. After Rajin Port activity surpasses capacity there, Oongsang Port will become the next regional hub for drybulk activity.

Sonbong Port
Originally opened in the early 70’s, the draft within the port is 7 meters, but a fully laden Very Large Crude Carrier containing 270,000 metric tons of oil can offload at an offshore facility further out at sea. Two pipes, 63 cm in diameter, run for 9km underground before reaching the storage facility at “Victory Petrochemical”, a simple refinery that was designed to refine crude and send oil products (gasoline, naphtha, jet fuel, diesel and fuel oil) back to the port for export. In addition to this two way flow, fuel oil also arrived sporadically at the port as part of aid packages from 1994 to 2008.

Sonbong Power
This power plant was originally designed to take fuel oil from Victory Petrochemical as feedstock and generate power to feed back to Victory. Since the refinery has been offline, Sonbong Power has at times provided electricity to the region, but with fuel oil prices close to $700/metric ton and current electricity prices at 6.5 eurocents/kwh, the economics of running the plant do not work leaving the 800 workers employed here largely idle.

Victory [Sungri] Oil Refinery
Literally translated as “Victory Chemical Plant”, this refinery was completed in 1973 with a 40,000bbl/day crude distillation unit that typically yields 40~50% residual fuel oil for an average crude feed. Investment into upgrading capacity in the international market has led to an eroding of margins for simple refineries like Victory. Currently the refinery is idle and would need over $500M in investment to become competitive.

Hye Song Trading Company
Mr Kim visited a Sewing Factory owned by Hye Song, which runs 8 such factories employing 2000 workers. Output is recorded for the entire year on a bulletin board at the front entrance of the company. All employees except the handyman were women.

Cell Phone use more prevalent
The number of cell phone users in the DPRK crossed 1 million earlier this year and one official commented that the overwhelming majority of urban households have at least one cell phone. This particular official had 4 phones for a household of 3. Foreigners are allowed to use cell phones on a different network, and users of the domestic and foreign network can not call each other. All usage is prepaid.

Handset Type: Local
Purchase Cost: 1570-2200 RMB
Usage Cost: 250 minutes and 20 text messages, while each additional minute is charged at 60 NKW (about .1 RMB/min)

Handset Type: Foreigner
Purchase Cost: 1800-2400 RMB
Usage Cost: Does not include any free minutes and are charged at 2RMB/min

Banking System has room for growth
There are two banks in Rason, the Central Bank, which is focused on domestic transactions, and the Golden Triangle Bank, which is focused on foreign currency transactions. Transactions for goods and services are conducted almost entirely in cash, usually in RMB or NKW. Mechanisms for savings are credit have room for development. As banks take a fee to deposit and withdraw cash, merchants prefer to hold money in cash (usually RMB). Credit is also available almost exclusively through friends or family.

Bottlenecks
A number of issues require solving if Rason is serious about attracting large scale foreign investment. Among these are reliable access to travel visas, reasonable communications costs with the outside world, a more mature banking system with savings and credit mechanisms and favorable tax treatment with a consistent legal framework. The mere fact that Rason is experimenting with market reform is encouraging, and Mr Kim is optimistic about economic development in the region and the nation as a whole.

“North Korea on the Cusp of Digital Transformation”
Nautilus Institute
Alexandre Mansurov

“North Korea: An Up-and-Coming IT-Outsourcing Destination”
38 North
Paul Tija, GPI Consulting

“NK People Speak, 2011” (Interviews with North Koreans in China)
Daily NK (PDF)

“The Rise and Fall of Détente on the Korean Peninsula, 1970-1974”
Wilson Center NKIDP
Christian F. Ostermann and James Person
(Coverage of the report in the Donga Ilbo can be found here)

Don’t Expect a Pyongyang Spring Sometime Soon
Center for Strategic and International Studies (via CanKor)
Hazel Smith

Institute for Far Eastern Studies (IFES)
2011-10-27

The North Korean media has reported Kim Jong Il has made nine official appearances from October 1 to 16, making roughly about one appearance every two days.

According to the KCNA, Kim has made six on-the-spot guidance visits in South Hamgyong Province, visiting Daehung Youth Hero and Ryongyang Mines in Danchon City and 2.8 [Vinalon] Complex, Hungnam Fertilizer Complex, Ryongsong Machinery Complex, and Hungnam Smeltery in Hamhung City.

Compared to last month’s official activities, this is a noticeable increase.

Kim has made 18 official appearances in July and spent a week in Russia and China in August but remained fairly quiet during the month of September with only six reported activities.

Last month, Japan’s Jiji Press reported that Kim was not able to meet with the Indonesian delegation (who was visiting Pyongyang at the time) due to poor health. Many experts also believe that Kim’s health has deteriorated since his return from abroad and thus has made fewer public appearances.

Kim is believed to have stayed in Pyongyang in September and his recent visits to South Hamgyong Province are evidence that his health is improving.

Another interesting fact is that most of Kim Jong Il’s recent activities are economic centered. He has made no visits to military base this month, and except for attendance at the sixty-sixth anniversary party of the Korean Workers’ Party and Unhasu Orchestra performance, Kim has focused mainly on economic on-site inspections.

Taking a closer look at the sites Kim has visited, they consist mainly of construction or completed sites such as Danchon Port, a solar energy installation center, Daedong River pig and duck farms, and Pyongsong synthetic leather factory in Northern Pyongan Province.

Accompanying Kim at these economic sites were also high ranking officials. The KCNA reported on October 18 that President of the Supreme People’s Assembly Kim Yong Nam, Premier Choe Yong Rim, and other party members inspected the modernized facilities of the Tudan Duck Farm.

As North Korea prepares for the year 2012, with the self-proclaimed goal of becoming a “strong and prosperous nation,” it appears to be placing added emphasis on producing tangible outcomes to encourage economic development and improve the quality of life for the North Korean people.

North Korea recently discussed ways to fulfill this year’s economic targets. In an extended plenary session presided over by Premier Choe Yong Rim, the cabinet addressed measures to increase the state’s production of coal, electricity, metal, and railways freight traffic. In addition, it also reported on the economic performance for the third-quarter of this year.

This story was published on October 27, but it was probably written on October 17th.  Following completion of the article, but before it was posted to the internet, Kim Jong-il did make two visits to KPA units (4304 and 985).

As of October 29, Kim Jong-il made 32 public appearances in the month:

Huichon Precision Machine Plant
Huichon Ryonha General Machinery Plant
February 8 General Machinery Plant
Jangjagang Machine Tool Factory
Kanggye General Tractor Plant
KJI received Li Keqiang, member of the Standing Committee of the Political Bureau of the C.C., the Communist Party of China and vice-premier of the State Council of China
Banquet for South Hamgyong officials
Kwangdok Pig Farm
KPA Unit 985
Kim Jong Il received Oleg Kozhemyako, governor of Amur Region of the Russian Federation
KPA Unit 4304
Art Performance of KPA Company Soldiers
Tongbong Cooperative Farm
February 8 Vinalon Complex
Hungnam Fertilizer Complex
Ryongsong Machine Coplex
Hungnam Smeltery
Ryongyang Mine
Taehung Youth Hero Mine
Taedonggang Net-weaving Factory
Taedonggang Pig Farm
Taedonggang Terrapin Farm
Banquet Given by Central Committee and Central Military Commission of WPK
Unhasu Orchestra
Tudan Duck Farm
Solar Equipment Center
Central Tree Nursery
Phyongsong Synthetic Leather Factory
Raknang Disabled Soldiers’ Essential Plastic Goods Factory
Ryongjon Fruit Farm
Tanchon Magnesia Factory
Tanchon Port Construction

And what has Kim Jong-un been up to?  According to Yonhap:

North Korean leader Kim Jong-il’s heir apparent has been seen expanding the realm of his public activities in recent months, according to reports from the North’s news media monitored in Seoul.

Kim named his youngest son, Jong-un, vice chairman of the Central Military Commission of the ruling Workers’ Party and a four-star general last September in the clearest sign yet that he will take over the regime.

The son has frequently attended economic and diplomatic events in the second half of this year while he focused on military-related activities in the first half, according to North Korean media reports.

The junior Kim has already accompanied his father for his public activities as many as 36 times in the four months or so from July, compared to 35 times in the first six months.

Of the 36 cases, 11 were economy-related, compared to nine in the first half.

Jong-un is also believed to be faithfully absorbing leadership lessons from his father in the diplomatic sector.

He sat beside his father when he met with visiting Chinese Vice Premier Li Keqiang on Monday in Pyongyang.

Jong-un, in particular, sat to Li’s right during a photo opportunity for the meeting, indicating his firm position as the No. 2 man in the North.

On Sept. 23, Jong-un attended a meeting between his father and visiting Laotian President Choummaly Sayasone.

Experts say the heir apparent’s expansion of activities to the economy and diplomacy shows that the country’s second father-to-son power succession is going smoothly.

“Jong-un has yet to assume titles other than vice chairman of the Central Military Commission but seems to be strengthening his position, building experience in various fields,” a North Korea expert said, requesting not to be named.

According to Yonhap:

Multidrug-resistant tuberculosis has emerged as a major public health problem for North Korea, a private foundation said Thursday, calling for public donation to help combat the highly contagious disease.

Stephen W. Linton, chairman of the Eugene Bell Foundation, said his foundation currently treats some 600 multidrug-resistant patients in six medical centers in the North, but hundreds of people are still on the waiting list.

You can read more about the Eugene Bell Foundation’s work in the DPRK here.

Previous posts on the Eugene Bell Foundation here. Their web page is here.

Read the Yonhap story here:
Multidrug-resistant tuberculosis poses public health risk in N. Korea
Yonhap
2011/10/27

Pictured above (Google Earth): The towns mentioned in the article below from which the Kaesong Industrial Zone could draw more labor: Pongchon (봉천), Kumchon (금천), and Phyongsan (평산).

Institute for Far Eastern Studies (IFES)
2011-10-20

According to South Korea’s Ministry of Unification (MOU), the “May 24 Sanctions” that went into effect after the sinking of the naval boat Cheonan was relaxed and began to permit the resumption of construction of businesses in the Kaesong Industrial Complex (KIC). In addition, plans to build fire stations and emergency medical facilities in the area are also currently underway.

After South Korean Grand National Party chairman Hong Jun-pyo visited KIC on September 30, 2011, the ROK government has reached the following decisions: 1) to allow the resumption of halted factory constructions; 2) to build a fire station and emergency medical facility; 3) to resume repair work for commuting roads for KIC employees; and 4) to extend the operations of commuter buses.

This means seven companies that received permits in the past to begin construction but stopped after the sanctions went into effect would be able to resume the halted construction projects.

According to the Ministry of Unification, the seven companies include three metal and machinery, three textile, and one electronic factories, taking up a total area of 103,527 square meters. The total site of production facilities of stage 1 businesses in the KIC reaches 2,171,900 square meters, in which the currently operating 123 companies take up 783,471 square meters. With the sanctions lifted, the total area of businesses in operation will reach 885,950 square meters.

In addition, five companies awaiting construction for expansion will have to wait a little longer. The authorities announced to discuss this issue at a later date, looking positively on their construction to resume shortly as well.

Also the MOU announced to push forward with the establishment of fire stations and emergency medical facilities, “to protect the properties and health of businesses and employees of the KIC. The plans to break ground for fire station will begin in mid-November and is expected to be completed by late next year.”

The layout for the KIC fire station was completed in December 2009 and 3.3 billion USD has been budgeted to fund the construction. The station will be constructed on a steel frame on a 3,305 square-meter lot with the total floor space to be around 2,182 square meters.

The Kaesong Management Committee has been operating a “fire/police station” from April 2005. But with occurrences of accidental fires since last winter, it has reinforced the number of fire engines and manpower – currently at a total of eight fire trucks and 36 fire fighters.

Medical facilities in the KIC will also be completed by the end of 2012 once the construction begins early next year. About 3 billion USD is set for this project.

Currently at the KIC, Green Doctor’s Cooperation Hospital is in charge of providing medical and health services in the KIC, with South Korea Green Doctor’s Kaesong Hospital treating the South Korean employees and North Korean Comprehensive Clinic treating the North Korean employees exclusively. The South Korea Green Doctor’s Kaesong Hospital is currently operated by volunteers at a clinic level. The hospital was in the process of improving the facilities to more than ten beds. However, this project was halted after the May 24 sanctions went in effect.

On another note, the MOU also announced that maintenance work for the road connecting Kaesong City to the KIC would begin. The road is normally used by North Korean employees of the KIC. It was also announced that the number and operation of commuter buses would increase to help with the commute. The buses operate in the 20 km radius; the plan is to increase that to 40 km. Since September 2010, the number of buses increased to 400.

There are plans to extend the service to cover the areas of Kumchon, Bongchon, and Pyongsang. However, the roads to these areas are unpaved and extension of transportation services to these areas will require negotiations with the North Korean authorities.

Although these measures will alleviate some of the problems faced by the businesses in the KIC, the MOU still stands firm on its position that North Korea must take responsibility and make formal apology for the Cheonan incident in order for a fundamental resolution of the situation to occur.

1. “Relying on One’s Strength: The Growth of the Private Agriculture in Borderland Areas of North Korea”
Andrei Lankov，Seok Hyang Kim ，Inok Kwa
PDF of the article here 

The two decades which followed the collapse of the communist bloc were a period of dramatic social and economic transformation in North Korea. The 1990-2010 period was a time when market economy re-emerged in North Korea where once could be seen as the most perfect example of the Stalinist economic model. The present article deals with one of the major areas of socioeconomic change which, so far, has not been the focus of previous studies. The topic is about the growth of private agricultural activities in North Korea after 1990. This growth constitutes a significant phenomenon which has important social consequences and also is important from a purely economic point of view: it seems that the spontaneous growth of private plots played a major role in the recent improvement of the food situation inside North Korea.

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3. Korea Sharing Movement anti-malarial program (Via Cancor)
Read a PDF of on the project here

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4. What is it like to teach at the Pyongyang University of Science and Technology (PUST)?
Find out from one instructor here. More on PUST here.

Via Geoffrey See at Choson Exchange:

On my last trip to Pyongyang, I had the opportunity to catch up with some Egyptian expatriates from Orascom Telecom Holding over popcorn and whiskey. They were also kind enough to bring our team clubbing into the wee hours of morning.

Orascom Holdings is three companies each headed by a different brother of the Orascom family. Orascom Telecoms is headed by Naguib Sawiris, while the resorts arm Orascom Development is run by Samir Sawiris, and the construction arm Orascom Construction by another brother. All three brothers have stakes in different assets in North Korea, with the infamous Ryuggyong Hotel owned by Samih Sawiris. As of May 2010, when I had met Samih Sawiris in Switzerland, he had yet to visit Pyongyang. Recent pictures from Pyongyang indicate that this has changed.

The most exciting development to us was Orascom’s 3G Internet service which was still under the testing phase. The plan is to roll out this service in the near future, although the service will only be available to resident foreigners in the initial phase. Approval for this service to be provided on a larger-scale to North Korean citizens, in any censored form, has yet to be given although the infrastructure to do so is in place. For foreign residents in Pyongyang, the service could offer cost-savings of up to 60-80 percent over current satellite internet offerings. There is no information on what security trade-off such a service might entail.

We also discussed text advertising and the current mobile service business. While text advertising is possible, there has yet to be approval for the company to run such a service. Currently, handsets cost Euro 50 each and there is a monthly subscription fee of 900 Won (we are not sure how this cost scales with usage). For reference, the unofficial exchange rate has fluctuated around 2500 to 3500 Won to 1 Euro this year.

Click here to see previous posts about Orascom and cell phones in the DPRK.