North Korean Economy Watch

According to Yonhap:

A U.S. humanitarian group has sent US$800,000 worth of medical aid to North Korea as part of its continued effort to help the impoverished communist nation, a news report said Friday.

AmeriCares, a nonprofit organization based in Connecticut, shipped a package of medicine, sanitary goods and other medical aid in June, the Voice of America (VOA) reported.

The shipment will arrive at the end of this month, the aid group’s communication director, Donna Porstner, told the VOA.

The supplies will be distributed to six hospitals and clinics in Pyongyang, Pyongan Province, and North Hwanghae Province, it added.

AmeriCares said it delivered $1.8 million in medical assistance to North Korea earlier this year.

“Despite the challenging political context, AmeriCares — in its mission to help people in need irrespective of their race, creed or political persuasion — is committed to helping the people of North Korea, who have suffered from acute food shortages, natural disasters and isolation,” it said on its website, www.americares.org.

“A limited number of economic, political and social ties often means that the country faces shortages of key medical supplies,” it added.

Read the full story here:
U.S. NGO ships US$800,000 worth of medical aid to N. Korea
Yonhap
2014-7-25

According to KCNA:

Economic Development Zones to Be Set up in Provinces of DPRK

Pyongyang, July 23, 2014 17:50 KST (KCNA) — It was decided in the DPRK to establish economic development zones in some areas of Pyongyang, South Hwanghae Province, Nampho City, South and North Phyongan provinces.

Unjong cutting-edge technological development zone will be set up in some areas of Wisong-dong, Kwahak 1-dong and Kwahak 2-dong, Paesan-dong and Ulmil-dong in Unjong District, Pyongyang.

Kangryong international green model zone will be set up in some areas of Kangryong township in Kangryong County, South Hwanghae Province.

Jindo export processing zone will appear in some areas of Jindo-dong and Hwado-ri, Waudo District, Nampho City.

Chongnam industrial development zone will be set up in some areas of Ryongbuk-ri, Chongnam District, South Phyongan Province. Sukchon agricultural development zone will appear in some areas of Unjong-ri, Sukchon County and Chongsu tourist development zone in some areas of Chongsong Workers’ District and Pangsan-ri, Sakju County, North Phyongan Province.

The sovereignty of the DPRK would be exercised in the economic development zones in provinces.

The relevant decree of the Presidium of the Supreme People’s Assembly was promulgated on Wednesday.

By my count, this brings the total number of special economic zones and economic development zones to 25. Little visible progress has been made on the zones announced in 2013, though things seem to be happening in Pyongyang. Also, South Phyongan Province now has Economic Development Zones. It had been omitted from previous lists.

Yonhap also reports:

Jin Qiangyi, a professor of Korean studies at Yanbian University, told the state-run China Daily that the move by North Korea is apparently aimed at breathing new life into its moribund economy.

…

“Many Chinese companies still feel daunted by doing business in the country because there is no clear policy to guarantee investors’ interests,” the newspaper quoted Jin as saying.

However, another Chinese expert, Li Tianguo, a researcher at the National Institute of International Strategy at the Chinese Academy of Social Sciences, was less pessimistic.

Li told the newspaper that the new zones will “have great attraction to Chinese enterprise and bring good opportunities, in particular for businesses with border trade and processing production.”

China’s direct investment into North Korea jumped to US$109.46 million in 2012 from $5.86 million in 2009, the newspaper reported, citing what it called a “2012 Statistical Bulletin of China’s Outward Foreign Direct Investment.”

Here is analysis by the Institute for Far Eastern Studies (IFES):

North Korea Declares Six Additional Economic Development Zones

On July 23, 2014, the (North) Korean Central News Agency (KCNA) announced the designation of six additional economic development zones (EDZs) throughout various provinces in North Korea. The announcement, which states, “It was decided in the DPRK to establish economic development zones in some areas of Pyongyang, South Hwanghae Province, Nampo City, South and North Pyongan Provinces,” and that this decree was promulgated by the Presidium of the Supreme People’s Assembly (SPA).

It was announced that North Korea will push forward with the Unjong Cutting-Edge Technological Development Zone in the areas of Wisong, Kwahak 1 and 2, Paesan and Ulmil, located in the Unjong District of Pyongyang. Furthermore, it appears that the Kangryong International Green Model Zone will be established in Kangryong County in South Hwanghae Province. According to the investment propositions revealed in November 2013, the “International Green Model Zone” will focus on the development of organic farming and greenhouse technology, wind and water power technology, and the development of services such as golf courses and hotels.

The Chongnam Industrial Development Zone will be set up in Chongnam District in South Pyongan Province, Sukchon Agricultural Development Zone will be established in various areas in Unjong in Sukchon County, and the Chongsu Tourist Development Zone will cover the areas of the Chongsong Workers’ District and Pangsan, Sakju County in North Pyongan Province. It has also been reported that North Korea will push forward with the Jindo Export Processing Zone in Jindo and Hwado, located in the Waudo District of Nampo City. Following the announcement of thirteen new economic development zones in November last year, including the Amrok (Yalu) River EDZ, Sinpyeong Tourism Development Zone, the Manpo EDZ and Wiwon Industrial Development Zone, the newly announced six additional zones brings the total number of economic development zones in North Korea to nineteen.

It was also reported by the KCNA on the same day that the Sinuiju Special Economic Zone in Sinuiju, North Pyongan Province, will be renamed to the Sinuiju International Economic Zone. Through this renaming, it can be assumed that North Korea is intending to reinitiate development in the stagnating zone, which has been in the development process since first being designated as a special economic zone in 2002.

On the other hand, the Wonsan Kalma Peninsula in North Korea’s Kangwondo Province, renowned for its beautiful scenery, has been garnering attention due to a recent push for the construction of large-scale accommodation, recreation and industrial facilities. Over 1,400 ha plot of land along the Kalma Peninsula is expected to be divided up into several areas, including hotels and accommodations, conference and exhibit fairgrounds, an athletics stadium, economic development area, and a commerce service area.

In order to respond to the increase in tourists visiting the Wonsan area, North Korea is preparing to increase the area’s hotel and lodging capacity by ten times, maxing out at a total capacity of eleven thousand people. Furthermore, plans have been drawn up calling for the construction of a passenger wharf which can transport up to twenty-five thousand people per day to the waterfront. The beach area will also be developed, allowing for up to ten thousand beachgoers at one time.

In the Dunam Mountain area of Kalma Peninsula, theaters, golf courses, an underwater hotel, and tourist accommodations will be built together with industrial complexes for science, industry and agricultural research and development. It is also predicted that North Korea will also develop several of the small islands off the coast of the Kalma Peninsula into tourist attractions.

I have all of the economic Development Zones mapped out on Google Earth.

UPDATE 3 (2014-8-14): Reader Théo Clément sent these pictures of the interior of the beef factory/bar:

UPDATE 2 (2014-8-6): Here is an interview (in English) on Radio Praha with Martin Kovář about the brewery.

UPDATE 1 (2014-7-15):

Pictured above (Google Earth): The new brewery in Rajin

One of the individuals involved in setting up the brewery gave this interview (in Czech). NK News translated some of it:

Zvu Potez Sales Director Martin Kovar said that North Korean representatives in the Czech Republic contacted his company directly, saying they wanted to open a brewery in the DPRK with Czech expertise.

“We took them to a few Czech microbreweries so they could examine them and know what to expect from them,” he said, “And they chose a type of beer that most of them liked”.

The brewery subsequently opened in December last year, with equipment brought directly to the site in shipping containers from Prague, via the Russian railway line across Siberia from Khasan in Russia to Rajin port.

According to visitors to the Rason area in late 2013, two staff from the Zvu Potez company arrived in Rajin to help set up the site and train three to four locals in how to use and maintain the brewery.

Among the Czech staff was Tomáš Novotný, who worked as Chief Technologist for Zvu Potez in North Korea for six months while the brewery was being set up.

His job, he told NK News in an email, was to give the North Koreans the “know-how” and supervise the production of the first beer, which he said would be brewed primarily for the local market.

…

The Czechs have now all returned home, he said, and the brewery is under the full direction of the North Koreans.

And according to Radio Free Asia:

North Korea then opened a microbrewery in the Rason Special Economic Zone in late 2013 and equipped it entirely with Czech-made appliances and hardware.

In addition to the equipment, Novotny explained that the ingredients – malt, hop, and yeast – were also imported from the Czech Republic.

In this effort, brewing technologist Novotny stayed in the North for six months, beginning last October, to teach two North Koreans what he knows about beer.

Novotny added, however, he does not know what the North plans to do once they use up the one-year supply of ingredients from his country.

So why is the impoverished country striving to improve the quality of its beer? It may be that better beer means better business.

While beer at the bar in Rason is free for locals, tourists must pay about 70 U.S. cents per pint, according to the North Korea-focused website NK News.

Pyongyang is also encouraging foreign visitors to take a tour of its various microbreweries, including the Rakwon Paradise , the Taedonggang Craft Brewery, and the Yanggakdo Hotel Microbrewery.

The Czech company’s work on the Rason brewery has come to an end, and it does not intend to send more experts unless North Korea places additional orders.

ORIGINAL POST (2013-12-2): An article in Forbes tells us that Rason is getting a new Czech brewery:

Tomas Novotny has been in North Korea two days, and he looks frazzled. It was a long journey from Prague, and standing on the street in downtown Rajin, his government minder by his side, he can already see that doing business in the DPRK’s remote northeast will present an unusual set of challenges.

…

Novotny is here because of that railway line. A brewing technologist with the Czech firm Zvu Potez, he has come to set up a brewery. All the equipment and materials were transported by train–from Prague to Moscow, through Siberia and onto the branch line of the Trans-Korean main line.

“We’re still building the brewery. Come and see it,” says Novotny. The two containers that brought the Zvu Potez equipment from Prague lie 50 meters from the brewery. It’s a great location by the sea in Rajin’s main park. The business is a joint venture between the Czech firm and the Rason regional government, says Novotny, and will target tourists and foreigners. There are about 300 Western tourists–including Russians–a year and about 20,000 Chinese visitors to the country’s northeast.

“When they’ve finished building,” he says, shouting over the drilling, “I’m going to teach three or four locals how to brew. I hope they can speak English. If they can’t it will be interesting.”

He expects to be in Rason for six months establishing the business, but already he misses home and his young son. “I won’t get to speak to them until I go home at Christmas,” he says.

According to Yonhap:

The North spent over US$146,000 to buy medical supplies from Bangladesh in the fiscal year 2014, the Washington-based Radio Free Asia (RFA) reported, citing trade statistics from the Bangladeshi Export Promotion Bureau.

The figure is more than double the $68,000 tallied in the fiscal year 2013. The country closes its books in June.

The North likely chose Bangladesh as its trading partner because the latter can copy patented drugs and sell them abroad for now as per an international agreement brokered by the World Trade Organization, the Dhaka office of the Korea Trade-Investment Promotion Agency said.

North Korea also bought $163,000 worth of instruments used in radiology from the U.S. in May, trade documents by the U.S. Commerce Development showed earlier this month.

Though it is too early to tell, the RFA speculated that the North’s sudden interest in medical import may be closely related to leader Kim Jong-un’s recent campaign to boast his “love for the people,” a move possibly aimed at assuaging public outrage over a deadly collapse of an apartment building in Pyongyang in May.

The North’s healthcare spending has been among the least in the world, with the World Health Organization estimating that it had put in less than $1 per person in 2006.

Separately, the Swiss government has said it will continue its humanitarian assistance to North Korea for the next two years, the U.S.-based Voice of America reported Friday.

The Swiss Agency for Development and Cooperation (SDC) will extend its 2012-2014 Medium-Term Programme, an aid plan aimed at helping North Korea exploit sloping lands for farming purposes and gain better access to clean drinking water, by another couple of years, the report said.

Read the full story here:
N. Korea ramps up import of medical equipment, drugs in past year: RFA
Yonhap
2014-7-11

According to the Daily NK:

The British government donated $660,000 USD in Official Development Assistance (ODA) to North Korea last year, according to a Voice of America (VOA) report released on July 9th.

The report, citing a British government fiscal report, stated that more than half of the total sum, $342,000 USD, was spent by the British Council on English language education programs in Pyongyang. The program has been in place since the beginning of the century, when the two states established formal relations, and was recently extended to 2017.

Outside this sum, $167,000 USD was given to assist the rescue work of the Chosun Red Cross Society, while the British government also facilitated the participation of a North Korean athlete in the International Paralympics, and provided training for North Korean officials.

The British government has, throughout the life of bilateral relations, cleaved to a policy of critical engagement with the Kim regime, which, according to the official London stance, allows for harsh criticism of human rights and other abuses whilst also providing for progress in other areas.

Additional information:

1. Martyn Williams catalogs UK activities in the DPRK over the last few years here.

2. British Council forges new UK/North Korea cultural ties (Press Release on 2014-7-15)

3. Previous posts on the UK here.

Read the full story here:
British Government Gives $660,000 to North Korea
Daily NK
Moon Eun Joo
2014-7-10

According to Yonhap:

Cross-border trade between North Korea and Russia jumped 37 percent to US$104 million in 2013 from the $76 million recorded in the previous year, according to a report by Lee Yong-hwa, a researcher at the private think tank Hyundai Research Institute.

“The North is believed to have forged deeper relations with Russia in an effort to revitalize its economy and prevent it from becoming excessively dependent on China,” Lee said in the report.

The researcher said the two countries’ economic cooperation is forecast to grow further going forward as the North’s attempts to revitalize its moribund economy coincide with Russia’s bid to develop its Far Eastern regions.

According to the report, the portion of trade between North Korea and Far Eastern Russia out of the two nations’ total trade volume surged to 23.1 percent in 2013 from the 10 percent tallied in 2009, indicating that Russia’s Far East development policies have added to the overall bilateral trade expansion.

The socialist country has also tightened relations with Russia in other business areas including transportation and logistics as well as in the energy industry, the report added.

China was the biggest trading partner for North Korea last year with their bilateral trade volume reaching $6.54 billion, according to data from the Korea International Trade Association (KITA).

But trade between the two Koreas fell to its lowest level in eight years in 2013 due to their strained relations. Inter-Korean trade reached $1.15 billion last year, down a whopping 41.9 percent from the previous year’s $1.98 billion, the data showed.

Read the full story here:
Russia-N. Korea economic ties expanding: report
Yonhap
2014-7-3

According to Yonhap:

International humanitarian assistance to North Korea tumbled nearly 50 percent in the first half of this year from a year earlier, a U.S. radio report said Wednesday.

Citing the United Nations Office for the Coordination of Humanitarian Affairs (OCHA), the Washington-based Voice of America said North Korea received US$19.6 million of humanitarian aid in the January-June period, down 45 percent from the same period last year.

The report, however, gave no reason for the on-year plunge.

Six countries offered aid to the impoverished country during the six-month period, down from 10 a year earlier.

Switzerland led the pack with $3.82 million, followed by Sweden and Canada. No data was available on aid from Australia, Germany, Italy and Ireland, which provided assistance to the communist country last year, the report said.

Over 65 percent of the aid has been allocated to improve food security and nutrition in the country, it added.

So far this year, the U.N. has extended $6.49 million in the Central Emergency Relief Fund (CERF) to five of its agencies working in the communist state. The CERF is a type of pooled funds managed by the OCHA to assist humanitarian operations in any country experiencing acute or large, on-going crises.

Read the full story here:
Humanitarian aid to N. Korea nearly halves in H1: report
Yonhap
2014-7-2

The South Korean central bank, the Bank of Korea, publishes an annual summary of the DPRK’s economic performance the previous year. The 2013 report is out. You can also download it on my DPRK Economic Statistics Page.

Here is a summary in Yonhap:

The Bank of Korea (BOK) estimated that the country’s economy expanded 1.1 percent in 2013, slowing from a 1.3 percent on-year expansion in the previous year.

In 2012, the North Korean economy was estimated to have grown at the fastest pace in four years, after contracting 0.9 percent and 0.5 percent in 2009 and 2010, respectively.

A BOK official explained that while the North’s construction sector shrank last year, its agricultural output improved on favorable weather conditions.

An expansion in production of coal and iron ore also lent support to growth, the official added.

Pyongyang’s construction industry contracted 1 percent on-year, compared with a 1.6 percent decline in 2012, as an increase in the number of residential buildings failed to offset falling demand for road construction works.

Its agricultural and fishery industry, which accounts for 22.4 percent of its total output, expanded 1.9 percent last year, slowing from a 3.9 percent growth in 2012.

Growth in its mining and manufacturing industries, which account for 35.7 percent of overall output, gained traction to reach 1.5 percent, up from 1.3 percent a year earlier.

The data, meanwhile, showed that North Korea’s nominal gross national income (GNI) came in at 33.8 trillion won (US$33.3 billion) last year, which is roughly 2.3 percent of South Korea’s 2013 GNI of 1,441.1 trillion won.

The Wall Street Journal’s Korea Real Time notes the following:

“North Korea has neither the capability to collect and analyze all the relevant data necessary to measure its own GDP growth nor the willingness to disclose them to the outside world,” says Mr. Cho.

Marcus Noland published a graph of korean growth rates from 1990-2013 and offered comments on the BOK’s methodology:

And Noland’s comments:

According to the report, BOK constructs its national income account estimates “using basic data on North Korea’s economic activities supplied by relevant institutions…GDP at current prices is estimated with the use of South Korean prices and value-added ratios.”

What this means in non-economist speak is that someone (the NIS?) gathers data using some sources and methods which presumably put an emphasis on physical indicators that are easily countable. So that, as a practical matter, the South Korean authorities may have a better grasp of output in some sectors (like coal, where it’s easy to count railcars leaving a limited number of mines) and less on say services such as education where both the quantity and quality are more difficult to observe. Not surprisingly, the agricultural and industrial sectors of the economy show more output variability than does services. Whether this reflects reality or just problems counting physical indicators for services is unknown.

Then, having obtained these physical measures of output, we need prices and value-added weights to aggregate them into a single measure of the value of output. According to the BOK report they use South Korean prices and value-added weights. There are two problems here, though one problem may be diminishing over time. The first problem is that the relative price structures of the North and South Korea economies are not the same. However, over time it appears that the structure of domestic prices in both economies is getting more like world prices, and hence more like each other. So differing relative prices is probably less of an issue today than say 20 years ago.

Its less clear that the problem is disappearing with respect to the use of South Korean value-added weights that reflect the underlying techniques of production which remain vastly different across the two economies. Bottom line: we know there are some non-trivial problems with using the South Korean data to construct the North Korean GDP estimates.

Rumors have long circulated that the South Koreans either obtained or constructed a North Korean input-output table which they could use for these calculations, and contrary to the statement in the BOK report, weights derived from this source are used to construct the North Korean national income estimates, not the South Korean value-added weights. I personally do not know whether these claims are true or not.

Here is analysis by the Institute for Far Eastern Studies (IFES) (2014-7-4):

Real GDP of DPRK Grows in 2013, Marking Third Consecutive Year

On June 27, 2014 the Bank of Korea announced that North Korea’s real GDP grew 1.1 percent over the previous year (2013). Despite intense sanctions imposed by the international community, North Korea’s GDP grew by 0.8 percent in 2011 and 1.3 percent in 2012, showing that North Korea has been able to maintain a positive GDP growth rate for three years running.

The Bank of Korea’s “Gross Domestic Product Estimates for North Korea in 2013” report identifies favorable weather as a factor in increased agricultural production and higher crop yields, and points to the expanded production of coal, iron and other mineral resources as the keys to North Korea’s extra 1.1 percent growth.

As for individual sectors, crop production increased by 1.1 percent, the mining industry expanded by 2.1 percent, manufacturing by 1.1 percent, utilities (electricity, gas, water) by 2.3 percent, and the service industry expanded by 0.3 percent. On the other hand, due to a decrease in road construction and other public works projects, the construction sector posted a 1.0 percent decrease despite growth in homebuilding.

According to the Bank of Korea, North Korea’s 2013 gross national income (GNI) was 33.8 trillion won, approximately 1/43 of South Korea’s GNI for the same year. Furthermore, it was reported that North Korea’s GNI per capita in 2013 was 1.379 million won, approximately 1/21 of the GNI per capita of South Korea.

The scale of North Korea’s foreign trade (excluding inter-Korean trade) reached 7.34 billion USD (combined imports and exports) in 2013 — a 530 million USD increase over the previous year.

Exports saw an increase of 11.7 percent compared to 2012, reaching 3.22 billion USD, with exports of minerals and textiles seeing the highest increases of 14.4 percent and 31.2 percent, respectively. Imports in 2013 rose to 4.13 billion USD, an increase of 5 percent. Imports of machinery (-6.4 percent) and mineral production equipment (-3.6 percent) saw decreases, but North Korea saw large increases in textile (20.4 percent) and plastic products (27.5 percent) imports in 2013.

In 2013, the scale of inter-Korean trade decreased by 42.4 percent compared to the previous year, totaling 1.14 billion USD. The suspension of the Kaesong Industrial Complex was responsible for 99.7 percent of the decrease.

The Bank of Korea has estimated North Korean economic growth rates annually since 1991 by acquiring preliminary data through various affiliated agencies related to the North’s economic activities. The System of National Accounts (SNA) of the United Nations is used to estimate North Korean growth from the South.

According to Yonhap:

The World Food Programme (WFP) has decided to curtail its nutrition program for North Korean babies and pregnant women by about 30 percent due to a lack of funding, a U.S. report said Thursday.

The WFP is operating the two-year nutrition program worth US$200 million in North Korea through 2015, targeting 2.4 million children under the age of 5 as well as pregnant women.

But a lack of funding seemed to lead the U.N. food agency to decide to reduce the operation of its nutrition program, according to Radio Free Asia (RFA).

The WFP’s total budget for its humanitarian aid to North Korea reached $137.5 million, down about 30 percent from its original plan, according to the report, it added.

The number of North Korean children and pregnant women who benefited from the WFP’s program reached some 840,000 last month, far below the agency’s target.

Ertharin Cousin, the executive director of the WFP, said in late May in Seoul that its nutrition program stands at a “very crucial juncture,” adding that it had received only 20 percent of the funding required to implement the program.

The North has relied on international handouts since 1995 to help feed its people suffering from chronic food shortages.

The WFP’s humanitarian aid to North Korea reached $26.56 million last year, compared to $86.94 million in 2012, according to the U.N. food agency.

In November, the agency said that food production in the North is estimated to have been 5.03 million metric tons in 2013, up 5 percent from the previous year.

Stephan Haggard has a review of the WFP’s efforts in the DPRK here.

Read the full story here:
Underfunded WFP cuts nutrition program for N. Korea: report
Yonhap
2014-6-19

According to Yonhap:

Cumulative production of the inter-Korean industrial park has come to US$2.3 billion as the most salient outcome of rapprochement between the Koreas marks its 10th anniversary of operations this week, the unification ministry said Thursday.

The joint factory complex in the North Korean border town of Kaesong opened a decade ago following the first inter-Korean summit meeting in 2000, in which their leaders adopted a joint declaration calling for closer cooperation and exchanges.

On June 14, 2004, a group of 15 South Korean groups signed contracts to operate factories in the then-newly built complex, inaugurating the era of the Kaesong Industrial Complex. In December that year, the joint complex saw its first batch of goods produced in its factories.

In the first full year of operations in 2005, annual output reached $14.9 million before jumping by more than 30-fold to $469.5 million in 2012, according to the unification ministry.

But yearly output nearly halved last year from 2012 after Pyongyang suspended operations of the Kaesong complex for five months from April amid inter-Korean tensions. The figure rose to $168.1 million in the first quarter of this year.

The value of inter-Korean trade through the park came to an accumulated $9.45 billion, according to the ministry.

A total of 940,000 people have visited the inter-Korean economic zone, with 125 South Korean firms currently operating in the complex designed to match deep-pocketed South Korean companies with cheap North Korean labor.

Among the firms, 73, or 58.4 percent, are textile firms, while another 24 firms are machinery or steel makers. The complex is also home to 13 electronics makers and 9 chemicals firms, the ministry noted.

The Kaesong complex also saw the number of North Korean workers grow from around 6,000 in 2005 to 52,000 as of recently, along with monthly salary more than doubling from $50 to more than $130.

Although this story reports salaries of $130, a separate story released just a couple of days ago claims the monthly incomes are just $70. I am not sure why the discrepancy.

Read the full story here:
Cumulative output of Kaesong park reaches US$2.3 bln
Yonhap
2014-6-12