North Korean Economy Watch

Institute for Far Eastern studies (IFES)
2013-1-31

The total amount of assistance provided to North Korea by the South Korean government and private organizations in 2012 decreased by 28 percent against 2011, which marks six years of continuous decline.

The Ministry of Unification revealed on January 27 that the total amount of South Korean assistance to North Korea tallied 14.1 billion KRW (13 million USD), with 2.3 billion KRW (2.12 million USD) of government aid for vaccines and medical trainings and 11.8 billion KRW (10.89 million USD) from the private sector for medical supplies. This is a 28.1 percent drop from the previous year’s total of 1.96 billion KRW (18.09 million USD).

The South Korean government sent about 6.5 billion KRW (6 million USD) of medical supplies to North Korea via UNICEF and the private sector sent about 13.1 billion KRW (12.1 million USD) of malaria prevention supplies, powdered milk, soy milk, and flour.

Last year was the lowest record for humanitarian assistance to North Korea in sixteen years. Prior to this low was 1996, which recorded 3.6 billion KRW (3.3 million USD).

Lee Myung-bak administration’s aid to North Korea for the last five years reached a total of 257.5 billion KRW (236.2 million USD), with 102.4 billion KRW (93.94 million USD) in government funds and 155.1 billion KRW (142.3 million USD) from the private sector. This is equal to only 20 percent of the Roh Moo-hyun administration’s 1.275 trillion KRW (1.17 billion USD), and 44 percent of the Kim Dae-jung administration’s 582.9 billion KRW (534.8 million USD) of total aid to North Korea.

The highest record for South Korean humanitarian aid to North Korea was in 2006 at 298 billion KRW (273.4 million USD), in both government and private sector aid and continued to remain at a high level in 2007 with 289 billion KRW (265.1 million USD) in 2007. However, with the launch of the Lee Myung-bak government in 2008, it dropped to 116 billion KRW (106 million USD), and continued the downward slide recording 67.1 billion KRW (61.6 million USD) in 2009; 40.4 billion KRW (37.06 million USD) in 2010; 19.1 billion KRW in 2011 (17.5 million USD); and 14.1 billion KRW (12.9 million USD) in 2012.

The source of the drop in humanitarian assistance can be attributed to deadlocked inter-Korean relations followed by the shooting death of a Mount Kumgang tourist in 2008; long-range rocket launch and second nuclear test in 2009; and Cheonan and Yeonpyeong Island incidents in 2010.

From 1995 to 2012, the total amount of humanitarian aid to North Korea from the South Korean government was 1.48 trillion KRW (1.36 billion USD) and from the private sector was 871 billion KRW (799.1 million USD), equating to about 2.347 trillion KRW (2.15 billion USD) in total.

Meanwhile, international humanitarian aid to North Korea increased 30 percent in 2012 against the previous year. According to the United Nation’s Office for the Coordination of Humanitarian Affairs (OCHA), total aid to North Korea in 2012 was 113 million USD while the previous year reached 89.2 million USD. It quadrupled to the total amount, 24.4 million USD of 2010.

Nineteen countries joined in the effort to provide humanitarian aid to North Korea such as South Korea, Norway, Switzerland, Canada, Russia, Brazil, and Sweden. In 2010, there were only six countries, and it later increased to seventeen countries in 2011. The OCHA announced that the humanitarian aid provided in 2012 focused mainly on improving the food supply and nutrition, and provided agricultural support.

UPDATE: Here is a similar report in Yonhap (2013-1-27):

South Korea’s humanitarian aid to North Korea dropped 28 percent to a record 16-year low last year, the unification ministry said Sunday, as the cross-border relations remained chilled under Seoul’s outgoing government of President Lee Myung-bak.

Seoul’s humanitarian aid to the impoverished North totaled 14.1 billion won (US$13.1 million), compared with 19.6 billion won a year earlier. Last year’s amount is the lowest since 1996 when only 3.6 billion won was provided to the North in humanitarian aid.

The sharp drop came as relations between the two Koreas remained frozen since the North sank a South Korean warship near their Yellow Sea border in March 2010 and then shelled a border island in November that year. Pyongyang’s nuclear test and rocket launches also affected their ties.

The total amount of assistance the South provided the North during the five years of President Lee was 257.5 billion won, including 155.1 billion won of civilian aid. The total amount is only 20 percent of the aid sent during the presidency of Lee’s predecessor, the former late President Roh Moo-hyun.

Institute for Far Eastern Studies (IFES)
2013-1-23

The Ministry of Unification’s recent monthly report on ‘Trends on Inter-Korean Exchanges” included an examination of the last five years of the Lee Myung-bak administration’s (January 2008 to November 2012) people-to-people exchanges and economic cooperation between North and South Korea.

Over the past five years, total inter-Korean trade reached 8.94 billion USD, a growth of 58 percent against the previous Roh Moo-hyun administration’s 5.62 billion USD. This increase can be attributed to the steady growth of the Kaesong Industrial Complex (KIC). The KIC recorded a total trade volume of 6.695 billion USD under the incumbent administration, which is nearly a seven-fold increase compared to the previous Roh administration’s record of 957 million USD. Considering its importance, the KIC was exempt from South Korea’s May 24 (2010) sanctions imposed against the North.

During the Lee government, 108 companies were authorized for inter-Korean cooperation projects (including the Kaesong Industrial Complex). This represents a drastic drop from the previous government’s 370 companies. Under Lee, the number of cultural exchanges and related businesses that were approved were a mere 5, compared to the former administration’s record of 121.

Combined government and private sector assistance to North Korea totaled 256.3 billion KRW, only one fifth of what was recorded during the Roh administration (i.e., 1.27 trillion KRW). While the current government had more private sector support, the previous government showed more government support.

Over the 5 years of the Lee Myung-bak administration, 664,000 people traveled across the North-South border, which is significantly higher than the number (i.e., 390,002 people) recorded during the Roh administration. However, the majority were government officials, mainly those involved with the KIC.

The number of North Korean defectors that entered South Korea during the Lee administration’s term in office was 724 people, a significant drop from the 4,571 people during the 5-year term of the previous administration. Last year, no defectors entered South Korea — the first “zero-entry” in 14 years (that is, since 1998.

In terms of cross-border vehicle traffic, vehicles traveled across the border 840,009 times, an increase from the previous administration’s 490,000 visits. However, the quantity of goods transported dropped 40 percent from the previous, at 1.39 million tons.

In particular, after the ROKS Cheonan incident on March 2010, people-to-people exchanges and economic cooperation were completely halted due to the May 24 (2010) measures. The amount of goods transported was also largely reduced.

As far as cross-border rail is concerned, the Gyeongui Line (connecting South Korea to the KIC) and the Donghae Line (connecting the South to Mount Kumgang) were actively utilized during the Roh administration; but under the incumbent administration, only the Gyeongui Line was utilized.

During the Roh administration, the air traffic recorded 589 trips (42,495 people), but during the Lee government reached only 77 (3,812 people).

The number of separated families members reunited during the last five years was 1,774 (888 people in 2009 and 886 people in 2010). This is only a tenth of the 14,600 family members reunited during the former Roh Moo-hyun government.

Institute for Far Eastern Studies (IFES)
2012-8-2

Kaesong Industrial Complex (KIC) has recorded 1.7 billion USD in accumulative production output as of May this year. The first phase construction of KIC consisting of some 3.3 square meters was completed in July 2006.

According to a report submitted to the National Assembly on July 25, the Ministry of Unification (MOU) specified that, out of the 123 companies in KIC, there were 51,452 North Korean employees (as of May 2012) and the accumulative export reached 1.21 billion USD out of the accumulative production output.

Despite the severed inter-Korean ties from the May 24 sanctions of 2010, the KIC continued to operate while most economic cooperation, social and cultural exchanges and humanitarian aid were halted.

The report also included MOU’s pledge to continue to support for stable development of KIC consisting of building fire stations and emergency medical facility and road repairs, among other measures.

Currently, there are water purification and supply plant (30,000 ton/day), waste water treatment plant (15,000 ton/day), waste landfill (60,000 ㎥), and waste incineration plants (12,000 ton/day) in operation and health and safety facilities such as police and fire stations, Green Doctors Hospitals are in the vicinity. Power is provided by South Korea with 100,000 kilowatts capacity power supply system.

In addition, MOU announced that it will continue to coordinate with North Korea to improve transportation, communication and customs system at the next meeting, and engage in negotiation to solve other issues including improvement of personal safety and labor shortages.

MOU also claimed it is making efforts to obtain the “Made in (South) Korea” labels for the products made in KIC for FTAs (Free Trade Agreement) with the EU, United States, and China. MOU officials are also a part of the South Korean FTA negotiation team.

Currently, the top agenda for the KIC is housing for North Korean employees. Unification Minister Ryu Woo-ik stated, “While I understand the positions of both North and the South, in which South Korean companies are in need of more labor and North Korea wants for more employment opportunities, dormitory construction for employees is a large-scale project similar to building a new town. Therefore, it must be coordinated carefully with North Korea to find the best solution.”

UPDATE (2012-9-19): The South Korean government is offering compensation to companies affected affected by the South Korean government’s policy decisions. According to the JoongAng Daily:

The Ministry of Unification announced a plan yesterday to pay cash to local firms financially distressed by the suspension of inter-Korean trade and economic cooperation.

The unprecedented aid totaling 7.5 billion won ($6.7 million) will go to South Korean businessmen who have financially suffered from Seoul’s imposition of economic sanctions on North Korea on May 24, 2010 in the wake of the North’s sinking of the South’s naval vessel Cheonan earlier that year, said Kim Hyung-suk, a unification ministry spokesman. The 7.5 billion won comes from the Inter-Korean Cooperation Fund.

The offer of cash aid to companies doing business with North Korea is a first. Previously, authorities provided loans worth a total of 56.9 billion won to 221 companies on two occasions in 2010 and this year.

The decision comes as all economic cooperation between Seoul and Pyongyang has been put on hold except at the Kaesong Industrial Complex, since the implementation of measure announced by the Lee Myung-bak administration in May 2010.

The sanctions on trade with North Korea in the wake of the sinking of Cheonan, which killed 46 naval officers in March 2010, stopped all business partnerships.

“As it is mainly small- and medium-sized companies that are in financial difficulties due to the halted economic activities in the North, we expect the funds to help them recover,” said Yoon Min-ho, director of the economic cooperation division at the ministry.

To be eligible, companies must have investment records in the North during the two years before May 2010 or a history of trading with Pyongyang one year before May 2010.

The ministry will provide between 5 million won and 20 million won to each company that invested in the North following due diligence. Business groups that invested more than $3 million in the North will be given the maximum amount of 20 million won.

For traders with volumes of trade of over $1 million, aid of 15 million won will be given.

Companies that invested in the Mount Kumgang tourism business, which was curtailed after a North Korean guard shot a South Korean tourist in 2008, can also apply for assistance.

Article citation: Kang Jin-kyu, ”Cash aid for ailing investors in North”, JoongAng Daily, 2012-9-19

ORIGINAL POST (2012-6-1): Along with the anniversary of the “May 24 Measures”  we have seen many reports on the status of the DPRK – ROK trade relationship. I have previously blogged about the reports by the Korea Development Institute (KDI), Hyundai Research Institute and  Korea International Trade Association.

Now we have a new report by the Korea Trade-Investment Promotion Corporation (KOTRA).

Because I am unable to locate the original report (in Korean), I have posted commentary on the report below.

According to the Hankyoreh:

Seoul’s attempts to handle North Korean provocation by isolating it economically appear to have been ineffective. A report on 2011 North Korean trade trends released May 30 by the Korea Trade Promotion Corporation (KOTRA) had the country’s exports up by 84.2% and its imports up by 32.6% from the year before. The numbers did not include inter-Korean trade figures.

North Korea had trade of US$6.3 billion for 2011, comprised of US$2.8 in exports and US$3.5 in imports. This marked a 51.3% increase from the year before.

Its biggest export was coal, at US$1.17 billion, followed by minerals (US$400 million) and textiles (US$390 million). The largest import was petroleum and other fuels (US$810 million), followed by machinery (US$300 million) and electronics (US$270 million).

The country’s largest trading partner was China, with US$2.46 billion in exports and US$3.17 billion in imports last year, for total trade of US$5.63 billion, or 89.1% of all North Korean trade. In 2004, only 48.5% of North Korea’s trade was with China. The next largest trading partners were Russia, Germany, India, and Bangladesh, in that order.

Meanwhile, trade with South Korea slid amid Seoul’s efforts to isolate Pyongyang. A report on inter-Korean trade by the Unification Minister showed a total of US$1.7 billion last year, down nearly US$200 million from the US$1.9 recorded in 2010.

The numbers show that while inter-Korean economic cooperation is being stymied by the South Korean government‘s policies, North Korea has been making up the difference and then some by trading with other countries.

University of North Korean Studies professor Yang Mu-jin said, “Not only are the government’s isolation policies completely ineffective, but they’ve increased [North Korea’s] reliance on China. These policies have been proven ineffective and should be abandoned immediately.”

Here are some additional details from the Financial Times:

Trade with China increased 62.4 per cent from a year earlier to $5.63bn.

…

“The increased trade does not mean a better life for North Koreans because the hard currency earned from mineral exports to China was mostly spent on the large-scale events to promote the regime,” said Suh Jae-pyong, a North Korean defector who works for the Committee for the Democratisation of North Korea, a civic group.

Stephan Haggard comments on the KOTRA report on his blog:

So how important is China to North Korea? The numbers cited are often wildly exaggerated in the policy debates, largely because of the difficulty of getting accurate information on the DPRK’s overall trade. The government of North Korea regards economic statistics as state secrets; as a result, all trade data has to be reconstructed by examining the “mirror statistics” of the country’s trade partners: by adding up what other countries say that they import from the country.

But even such an apparently simple exercise is fraught. First, a number of countires—including Iran—also do not provide reliable trade statistics. Second, nearly every year the statistical agency of some country around the world gets North and South Korea confused and reports an amazing spike in trade with North Korea, consisting of imports of North Korean cell phones and automobiles. Not!

The most widely cited source on North Korean trade is a South Korean public agency, KOTRA, which carefully screens the mirror data for such obvious anomalies. But KOTRA adopts a number of other conventions that distort the overall trade picture. In calculating North Korean trade it excludes the country’s trade with South Korea (on the constitutional grounds that inter-Korean trade is within the nation) and oddly ignores trade with many Middle Eastern countries that do in fact report trade with North Korea to the UN statistical agencies. We have never figured out why they do this, and it may have reasonable motivations, such as beliefs about the reliability of the data. But simply throwing the data out makes now sense.

The upshot is that the prominence of the trade partners that KOTRA does count is greatly exaggerated. The New York Times and Washington Post, for example, have both reported that China accounts for 80 percent of North Korea’s trade; even with smuggling that is wildly exaggerated given the ongoing important of Kaesong for North Korea’s balance of payments.

The actual figure, once North-South and other missing entries are accounted for, is roughly half as much by our estimates (see the figure above). But over 40% reliance on China is not trivial. Moreover, the prevalence of private firms in this trade—as we have reported in two recent working papers (here and here)—is high. Moreover, state-owned enterprises are themselves profit-driven. Even if Chinese authorities were aggressive in enforcing sanctions—which they do not appear to be—the opportunities for mischief are high.

Scott Snyder comments on the numbers here.

Read the full stories here:
North Korea keeps doing business in spite of isolation
Hankyoreh
Lee Jeong-hun
2012-1-1

N Korea trade soars on Chinese demand
Financial Times
Song Jung-a
2012-1-1

Sanctions Busing
Stephan Haggard
2012-6-12

According to the Hankyoreh:

South Korean businesses have suffered losses of up to ten trillion won (US$8.3 billion) from the cutbacks in inter-Korean economic cooperation under the Lee Myung-bak administration, figures show.

The losses taken by South Korean firms are fives times the 1.8 trillion won (US$1.7 billion) North Korea’s estimated losses. The results show an unintended effect of Seoul’s May 24 sanctions, which were meant to punish North Korea economically for the shooting death of a tourist at the Mt. Kumkang resort, the sinking of the Cheonan warship, and the shelling of Yeonpyeong Island. North Korea has offset these losses with increased cooperation with China.

Read more below…

(more…)

According to Yonhap:

The Unification Ministry said Tuesday it will allow South Korean companies to bring new equipment into their factories at a joint industrial complex in North Korea in an easing of sanctions on the communist nation.

Seoul has banned the establishment of new factories or expanding investment in the industrial complex under economic sanctions slapped on the North in May 2010 in response to its torpedoing of the South Korean warship Cheonan in the Yellow Sea that killed 46 men aboard.

The ministry’s decision, effective from this week, is a follow-up measure after a group of eight ruling and opposition lawmakers last month visited the border city of Kaesong to meet with South Korean company officials and help work out problems with operating factories there.

More than 50,000 North Koreans work for 123 South Korean firms operating in the industrial zone to produce clothes, utensils, watches and other goods. The project serves as a key legitimate cash cow for the impoverished communist country.

According to a survey conducted by the ministry of the 123 firms after the parliamentary delegation’s visit, 15 firms wanted to move 803 pieces of equipment worth 4 billion won (US$3.5 million) out of the complex.

Thirty-two companies had plans to remodel the current factories or facilities, the survey showed.

The ministry is also considering expanding bus routes for North Korean workers to help employers hire more workers living farther away from the complex, officials noted.

Read the full story here:
Seoul eases limits on factories, equipment in Kaesong complex
Yonhap
2012-3-6

According to the Donga Ilbo:

The South Korean government will allow companies operating in the Kaesong industrial complex in North Korea to bring new facilities or build plants there. Against this background, regulations banning new investment in the complex under a sanction against North Korea, which made May 24 last year, will be massively eased.

Park Soo-jin, vice spokeswoman of the Unification Ministry in Seoul, said Wednesday, “We will ease sanctions on North Korea imposed May 24 last year to support the operations of plants operating (in the Kaesong complex), including allowing the entry of necessary facilities and construction of warehouses.” “We will also actively examine working-level talks with Pyongyang to resolve the issue of supply of North Korean workers. We are willing to negotiate with the North on building dormitories and tackling passage, customs and telecommunications matters and personal safety.” The ministry is also mulling putting artificial grass on a soccer field within the complex to improve living conditions of South Korean staff.

The latest decision is a follow-up measure after members of the special parliamentary committee for inter-Korean relations development and the National Assembly`s Foreign Affairs, Trade and Unification Committee visited the Kaesong complex Friday and urged the resolution of difficulties facing companies operating there. Having offered Tuesday working-level talks to Pyongyang for family reunions, Seoul apparently hopes to expand amicable relations through this deregulation.

The Unification Ministry said last year`s sanctions will remain in force since expansion of large-scale investments will still be banned, including new corporate advances into the complex and plant construction. The latest measure, however, is still a big step forward because until now, Seoul had approved just facility entry into the complex for repair purposes, while going forward, additional facilities could be allowed for production activities. Plant construction was initially allowed for seven companies, which had been suspended due to last year’s sanctions.

Certain projects are already in place, including the construction of fire stations and emergency medical facilities, as well as repair of roads for commuting by North Korean workers. The South Korean ban on visiting North Korea excluding the Kaesong complex and Mount Kumgang area, which was effected last year, was also eased following approval of trips to North Korea for social and cultural exchanges, including the recovery of Kaesong Manwol pavilion.

Read the full story here:
Seoul to partially lift restrictions on biz complex in N. Korea
Donga Ilbo
2012-2-16

Institute for Far Eastern Studies (IFES)
2012-2-8

As of January 2012, the Kaesong Industrial Complex (KIC) employs over 50,000 North Korean workers.

South Korea’s Ministry of Unification (MOU) reported that North Korea sent 449 additional workers to the complex last month, bringing the total number of North Korean employees at the KIC to 50,315.

The majority of the workers are women, comprising 72 percent of the total employees. A total of 81.8 percent are high school graduates, while 9.5 percent are college graduates and 8.7 percent are graduates from specialized/professional schools.

The KIC has had a low worker turnover rate. Some of the workers are licensed doctors and nurses, signifying the popularity of employment at the complex.

However, the MOU added that, “in order to meet the demands of the South Korean corporations in the KIC, 20,000 more workers are needed.”

Currently the average monthly wage of the workers is 110 USD, which is paid directly to the North Korean authorities in US dollars by the South Korean companies.

Out of the total wage, 45 percent is deducted and collected by the North Korean government as social security (15 percent) and social cultural policy funds (30 percent). The North Korean workers receive 55 percent of the total wage, which is paid either in coupons or North Korean currency.

Since the KIC’s opening in 2004, the total amount paid to the KIC workers reached 193.58 million USD as of November 2011.

Despite the deadlocked relations between the two Koreas, the number of employees, along with production and number of businesses, has steadily increased.

The number of employees in 2007 was 23,529. Thus the number has increased to over 50,000 in just four years, and the yearly production output has risen from 180 million to 400 million USD.

Cumulative production also increased from 310 million USD in March 2008 to 1.19 billion USD as of last year. During this time, 55 additional South Korean companies joined the KIC.

Yearly export output jumped from 870,000 USD in 2005 to 36.87 million USD in 2011. However, this is a drop from the previous year’s export of 39.67 million USD. Cumulative export as of November 2011 was 190 million USD.

In the assessment of the MOU, “the decrease in export reflects buyer’s anxiety from instability in inter-Korean relations and North Korean military provocations and many of the manufactured goods were sold domestically in South Korea.”

In addition, the issue of KIC-made products to be granted a “made in Korea” label is still under debate. According to an undisclosed MOU source, “This July will mark the one year anniversary of the ROK-EU FTA and the Committee on Outward Processing Zones (OPZ) is scheduled to meet to discuss the matter of KIC’s recognition as OPZ. But it will not be an easy game to win.”

UPDATE:  The Hankyoreh also wrote about the Kaesong Zone’s growth.

According to Yonhap:

South Korea has set aside more than 540 billion won (US$465 million) for humanitarian aid for North Korea this year, the Unification Ministry said Wednesday.

Most of the budget is earmarked for the South Korean government’s possible rice and fertilizer aid to its impoverished northern neighbor. It is also designed to provide aid to the North in case of natural disasters, according to the ministry, which handled inter-Korean affairs.

Read the full story here:
S. Korea sets aside more than 540 bln won for humanitarian aid for N. Korea
Yonhap
2012-1-11

According to the Korea Herald:

South Korea’s government last year executed the smallest amount of its inter-Korean cooperation fund in a decade, officials said Sunday, in another reflection of frayed relations with the communist North Korea.

The Unification Ministry, in charge of North Korean affairs, spent 42.6 billion won ($36.6 million), or 4.2 percent of the 1.1 trillion won fund designated as “South-North Cooperation Fund,” the ministry officials said.

The fund was used to support a Korean dictionary project, a humanitarian program by the United Nations Children‘s Fund as well as operating a facility for family reunions and an association for the inter-Korean industrial complex, they said.

Last year’s spending was the lowest level since 2000 when the two sides held their landmark summit talks and agreed on a wide range of cooperation projects as part of their reconciliation efforts.

Inter-Korean relations went to the lowest ebb in a decade after the North‘s two deadly provocations in 2010 that killed 50 South Koreans.

In 2008, when President Lee Myung-bak took office with a hard-line stance on North Korea’s nuclear program, the cooperation fund‘s execution rate plunged to 18.1 percent from 82.2 percent in 2007 under the liberal predecessor Roh Moo-hyun, the report noted.

The rate had remained at the 7 percent level between 2009 and 2010, it said.

The fund was created in 1991 to support humanitarian and economic exchanges between the divided Koreas, which remain technically at war after the 1950-53 Korean War ended in a truce. (Yonhap News)

Read the full story here:
Gov’t spending on inter-Korean projects lowest since 2000: ministry
Korea Herald
2012-1-8