North Korean Economy Watch

From the Choson Ilbo:

The number of North Korean refugees who remit money to their families in the North is rising. “Some 15,000 North Korean refugees have settled in the country, and over 6,000 of them are remitting money to North Korea,” a government official said. “We understand the size of the remittances is also growing.” An official with a refugee organization said there must be more than 10,000 who remit money to their families in the North.

If some 6,000 North Korean refugees here send money North, and a refugee remits US$1,000 a year, some $6 million is sent to North Korea per year. To that should be added 20,000-30,000 of the 100,000 North Koreans estimated to live in China.

Remittance routes are clandestine. Money is remitted to a Chinese broker, who contacts another in North Korea, who pays the recipient with his own money and settles the account with the Chinese broker later, leaving no documentary trail.

Currencies are usually American dollars and Chinese yuan. Commissions range between 15 and 20 percent, according to sources. “Remittances through brokers designated by North Koreans generally reach the recipient without a hitch, but Chinese brokers contacted in China are liable to steal the money,” a refugee said. The brokers handle tens of millions of dollars and are linked to organized gangs.

In the past, remittances required enormous bribes. First a man had to be sent to North Korea to bribe guards, with commissions exceeding 40 percent. But with the emergence of remittance brokers and the establishment of an organized system, the amount of money that reaches North Korean families has increased substantially.

The North Korean won is practically worthless in international exchange. A North Korean workers’ average salary was between W2,500 and 3,000 as of the end of 2008. Given that US$1 is traded at W3,200, $1,000 is the equivalent of 100 years’ worth of earnings and buys two apartments in places like Chongjin, North Hamgyeong Province, or Hamhung, South Hamgyeong Province.

In the past, the DPRK has promoted remittances—particularly to Koreans repatriated from Japan and their families.  The DPRK government then extracted its share of these funds by offering western goods for sale in hard currency shops at inflated prices.

The DPRK could do worse at promoting its legitimacy than to adopt the same policy in regards to remittances from every other country.  If the DPRK allowed remittances to flow through official channels, the government could simply extract a service fee equal to or slightly below the black market rate.  That is a win-win (except for the smugglers).

UPDATE: Japanese goods were (are?) historically sold at the Ragwan Deaprtment Store next to the Changwang Hotel (North-West of the Central District).

Another point to consider is the unfortunate role of politics in preventing the adoption of efficiency-enhancing economic reforms.  In the case of remittances, the DPRK would certainly have political problems with letting defectors send money to their relatives back home.  Under this particular constraint smuggling might be the next best option.  Since the operation is clandestine, the government does not have to acknowledge it exists, yet at the same time people can receive their remittancs and (some part of) the governance structure collects “taxes”.  

What “taxes”? The few people who are carrying out the financial transactions will have pay decent protection money to a sponsor high in the food chain.  The work is risky for numerous reasons, but we know some important people are behind it becuase the operation requires managers to keep enough hard currency on hand to cover the monthy/anual remittance payments from 6,000+ defectors. 

Read the full article here:
Refugees’ Remittances to N.Korea ‘Growing’
Choson Ilbo
2/10/2009

(Hat tip to One Free Korea)—According to Open Radio for North Korea, the DPRK won experienced a significant devaluation against to the dollar in the latter half of 2008:

According to the table and the article:

In 2008, North Korea’s exchange rate has shown relative stability of 3200 Won per Dollar and 460 Won per Chinese Yuan.

However, in December 2008, the exchange rate started to skyrocket.  The exchange rate in December was 3630 won per Dollar and 530 Won per Chinese Yuan- which was approximately 13 to 15 percent increase from the month before.  The exchange rate fell slightly to 3540 Won per Dollar and 530 Won per Yuan in January.  Nonetheless, the exchange rate isn’t likely to decrease further.

The sudden rise in foreign currency exchange rate in December seems to have correlation with the Chinese restriction on North Korean imports.  According to Chinese and North Korean traders, the sub par quality of imported products from China (speculated to be food products with melamine) was the origin of the Chinese restriction.  Sporadic breakout of illnesses in various regions of North Korea caused general distrust over Chinese imports, and the North Korean government relayed the complaints to Chinese authorities.  China in turn took a chauvinistic approach and unilaterally regulated trade between China and North Korea to teach North Korea a “lesson”

Nearly 50% of North Korean trade is with China.  Therefore, regulation on trade between North Korea and China, especially on North Korean exports to China inevitably has a severe impact on foreign currency market in North Korea.

For comparison I put together a table of the US$-RMB exchange rate during 2008 (interbank spot rate) using FX history:

So now we can conclude that in 2008 the Yuan appreciated against both the DPRK won and the and the US dollar, and that the US dollar appreciated against the DPRK won. 

So the next question is: how efficient are the currency markets which trade DPRK won? Doing some back of the napkin calculations using data from these two different sources (the story and FX History), I seem to have reached the conclusion that the DPRK won is traded rather efficiently.

The average RMB/USD exchange rate (interbank spot) in December 2008 was 6.86 RMB/USD (from FX history).  If you converted 686 RMB into USD, you would receive $100.  If you converted US$100 into DPRK won at the 3,630 rate in the story quoted above, you would receive w 363,000.  If you exchanged those won for Chinese RMB at the 530 rate quoted in the story, you would receive 684.90 RMB.  684.90 is 99.83% of 686. 

That seems too good to be true.

Writing in Marginal Revolution, Tyler Cowen points out a rather unique market in the Soviet Union—the market for burned-out light bulbs:

For most of us, it is hard to fathom the rationale for a market in burnt-out light bulbs. But in the scarcity-driven Soviet economy, the market was entirely reasonable. Light bulbs were rarely available to individual consumers, but were obtainable for state-sponsored activities. Thus, it would be difficult to purchase a light bulb for a new lamp in one’s home, while burnt-out bulbs in state-run offices or factories were routinely replaced. So if someone purchased a new lamp and needed a bulb, he would buy a used light bulb for a small fee and replace a functioning bulb at work with the dud. He would then take the functioning bulb home for the new lamp, while the burnt-out bulb at the office/factory would be replaced with a new functioning bulb. Meanwhile, the maintenance person at the office/factory would take the used bulb and sell it on the used light bulb market.

I have no problem believing similar markets exist in the DPRK.  If any readers from current or formerly communist countries have similar stories, please add them in the comments.

UPDATE: From the Institute for Far Eastern Studies:

The 12th election of representatives for the North Korean Supreme People’s Assembly, scheduled for March 8, and the opening of the session of the 12th SPA, expected to occur in late March or early April, will mark the launch of the third government under Kim Jong Il

Kim Jong Il was elected to his current position of NDC chairman by 10th SPA in 1998, and was reelected in 2003 by the 12th SPA. In those cases, as well, the Constituency No. 333 announced his nomination. It is expected that all other election constituencies across the country will begin holding celebratory events for Kim soon in order to disseminate propaganda portraying Kim as the representative for all the North Korean people.

Over at One Free Korea, Joshua points out KCNA’s gushing coverage of Kim Jong il’s nomination as a candidate in the upcoming elections for the Supreme People’s Assembly :

Pyongyang, February 4 (KCNA) — Upon hearing the news that General Secretary Kim Jong Il was nominated as a candidate for deputy to the 12th Supreme People’s Assembly at Constituency No. 333, the entire army and people are full of great happiness and pride of having the peerlessly great man as the leader of the nation.

Anti-Japanese revolutionary fighter Hwang Sun Hui said that the anti-Japanese revolutionary fighters were very happy to hear the news. She went on:

A few days ago the officers and men of the People’s Army nominated Kim Jong Il as a candidate for deputy to the SPA with boundless reverence. This is the unanimous will and ardent desire of the entire people.

On receiving this happy news with the February 16, the greatest holiday of the nation, ahead, I can hardly repress the swelling emotion.

We anti-Japanese revolutionary fighters will uphold the leader’s plan of building a great, prosperous and powerful nation in the van of the people.

Vice-premier of the DPRK Cabinet Thae Jong Su, noting that having nominated Kim Jong Il as a candidate for deputy to the SPA this time again is the unanimous will of the entire army and people and a great auspicious event of the nation, said:

Kim Jong Il has been leading the Party and the revolution along one road of victory for scores of years, thus performing great feats which will remain immortal in the history of the country.

He is the peerlessly great man who has defended firmly and developed in depth President Kim Il Sung’s Juche-oriented idea and line on state building and demonstrated the dignity and might of the DPRK all over the world with his original Songun politics.

All the officers and men of the People’s Army and the people came to have as a firm faith through life that he is the destiny and future of our country and nation and the symbol of all the victories.

Needless to say, the coverage from Singapore is far more sober and satisfying:

NORTH Korean leader Kim Jong-Il was Sunday nominated to run in next month’s parliamentary elections, a requirement if he to stay on as supreme army commander, a South Korean official said.

Elections for the rubber-stamp Supreme People’s Assembly should have been held last year, but did not go ahead amid reports that the 66-year-old Mr Kim suffered a stroke in August. They are now set for March 8.

He is legally required to be a lawmaker in order to be eligible to serve as chairman of the powerful National Defence Commission, which runs North Korea’s 1.1-million-strong army. It is in this capacity that Kim rules the country.

South Korean unification ministry spokesman Kim Ho-Nyoun told AFP that the North’s state television reported that Kim had been nominated to run in the 333th district for the polls.

Candidates are picked by either the government or the ruling communist party, and it is common for only one candidate to run for each electoral seat.

In the last elections in 2003, the North Korean media boasted a 99.9-percent voter turnout and 100-percent support for every candidate.

A new assembly usually reaffirms his chairmanship of the National Defence Commission, and brings a reshuffle of the cabinet and military leadership, the officials say.

Some analysts in Seoul have forecast the elections also may bring changes to North Korea’s leadership, in preparation for a post-Kim era.

Read the full story here:
NKorea’s Kim to run in polls
AFP via Stratits Times
2/1/2009

Martyn Williams writes in The Standard:

Koryolink, the North Korean 3G cellular network established in mid-December by Egypt’s Orascom Telecom, has attracted several thousand subscribers in the first two weeks since it began accepting applications in January.

“We didn’t start sales until about two weeks ago,” said Naguib Sawiris, chairman of Orascom Telecom in a telephone interview. “So far we have about 6,000 applications. The important point is that they are normal citizens, not the privileged or miliary generals or party higher-ups. For the first time they have been able to go to a shop and get a mobile phone.”

Orascom has a single shop in Pyongyang and is in the process of expanding its sales network, he said.

But while Koryolink’s first customers might not have high-profile official jobs, they are among the more wealthy in society and price, particularly of the handsets, stands as an obstacle to greater penetration.

“The price is quite high,” said Sawiris. “The government has put a big tax on handsets and it’s making it difficult for everyone to participate but we are having negotiations with the government to reduce that.”

The handsets Koryolink is offering, localized Korean versions of phones from China’s Huawei, cost between US$400 and $600 after the government levy has been added and there’s also calling charges.

The cheapest subscription costs 850 North Korean won per month. That’s about US$6 at the official exchange rate but only 24 cents at the current black market rate used by many citizens and traders. Calls on this tariff are charged at 10.2 won per minute. The highest package costs 2,550 won per month and call rates are 6.8 won per minute.

But all calls can be monitored:

With the launch of the Koryolink network the state continues to have the ability to monitor what its citizens are saying and can eavesdrop on calls if it wants, said Sawiris.

“That’s the right of the government,” he said.

How long to get the project moving?

It took about a year from that initial contact to reach an agreement and another nine months to get the network installed.

“We were quite worried about 2 things: the time it would take and the fact that they would really let normal citizens purchase lines.”

The full article is worth reading here:
North Korean 3G service attracts 6,000 in 2 weeks
The Standard
Martyn Williams
2/5/2009

The purpose of these types of indexes is to put pressure on world governments to improve their economic policies.  Unfortunately, the DPRK has come in last place for as long as I have been paying attention….

From the 2009 Index of Economic Freedom:

North Korea’s economic freedom score is 2, making its economy the least free in the 2009 Index. North Korea is ranked 41st out of 41 countries in the Asia-Pacific region.

North Korea does not score well in any single area of economic freedom, although it does score some minimal points in investment freedom and property rights. The Communist Party controls and commands almost every aspect of economic activity. Since the early 1990s, North Korea has replaced the doctrine of Marxism’Leninism with the late Kim Il-Sung’s juche (self-reliance) as the official state ideology. Yet the country’s impoverished population is heavily dependent on government subsidies in housing and food rations even though the state-run rationing system has deteriorated significantly in recent years.

North Korea devotes a disproportionately large share of GDP to military spending, further exacerbating the country’s already poor economic situation. Normal foreign trade is minimal, with China and South Korea being the most important trading partners. Trade with India is increasing. No courts are independent of political interference, and private property (particularly land) is strictly regulated by the state. Corruption is rampant but hard to distinguish from regular economic activity in a system in which arbitrary government control is the norm.

The Democratic People’s Republic of Korea is one of the world’s most oppressed and closed societies, and its Communist rulers have repressed basic human rights and nationalized all industry since the country’s founding in 1948. In the 1990s, floods and droughts exacerbated systemic shortcomings and led to severe famine and millions of civilian deaths. North Korea’s economy is mainly supported by international aid and trade with its major trading partners, China and South Korea.

Business Freedom
0.0
The overall freedom to start, operate, and close a business is extremely restricted by North Korea’s national regulatory environment. The state regulates the economy heavily through central planning. Economic reforms implemented in 2002 allegedly brought some changes at the enterprise and industrial levels, but entrepreneurial activity is virtually impossible.

Trade Freedom
0.0
The government controls all imports and exports, and formal trade is minimal. North Korean trade statistics are limited and compiled from trading partners’ data. Most trade is de facto aid, mainly from North Korea’s two main trading partners, China and South Korea. Non-tariff barriers are significant. Inter-Korean trade remains constrained by North Korea’s unwillingness to implement needed reform. Given the minimal level of trade, a score of zero was assigned.

Fiscal Freedom
0.0
No data on income or corporate tax rates are available because no effective tax system is in place. The government plans and manages almost every part of the economy. Given the absence of published official macroeconomic data, such figures as are available with respect to North Korea’s government expenditures are suspect and outdated.

Government Size
0.0
The government owns virtually all property and sets production levels for most products, and state-owned industries account for nearly all GDP. The state directs all significant economic activity. Large military spending further drains scarce resources.

Monetary Freedom
0.0
Price and wage reforms introduced in July 2002 consisted of reducing government subsidies and telling producers to charge prices that more closely reflect costs. Without matching supply-side measures to boost output, the result has been rampant inflation for many staple goods. Because of the ongoing crisis in agriculture, the government has banned sales of grain at markets and returned to rationing. A score of zero was assigned.

Investment Freedom
10.0
North Korea generally does not welcome foreign investment. A small number of projects may be approved by top levels of government; however, the scale of these investments is also small. Numerous countries employ sanctions against North Korea, and ongoing political and security concerns make investment extremely hazardous. Internal laws do not allow for international dispute arbitration. One attempt to open the economy to foreigners was North Korea’s first special economic zone, located at the remote Rajin-Sonbong site in the Northeast. Wage rates in the special zone are unrealistically high because the state controls the labor supply and insists on taking a share of wages. More recent special zones at Mt. Kumgang and Kaesong are more enticing. Aside from these few economic zones where investment is approved on a case-by-case basis, foreign investment is prohibited.

Financial Freedom
0.0
North Korea is a command-and-control economy with virtually no functioning financial sector. Access to financing is very limited and constrained by the country’s failed economy. The central bank also serves as a commercial bank and had more than 200 local branches in 2007. The government provides most funding for industries and takes a percentage from enterprises. Foreign aid agencies have set up microcredit schemes to lend to farmers and small businesses. A rumored overhaul of the financial system to permit firms to borrow from banks instead of receiving state-directed capital has not materialized. Because of debts dating back to the 1970s, most foreign banks will not enter North Korea.

Property Rights
5.0
Property rights are not guaranteed. Almost all property, including nearly all real property, belongs to the state, and the judiciary is not independent. The government even controls all chattel property (domestically produced goods as well as all imports and exports).

Freedom From Corruption
5.0
After the mid-1990s economic collapse and subsequent famines, North Korea developed an immense informal market, especially in agricultural goods. Informal trading with China in currency and goods is active. There are many indicators of corruption in the government and security forces. Military and government officials reportedly divert food aid from international donors and demand bribes before distributing it.

Labor Freedom
0.0
As the main source of employment, the state determines wages. Since the 2002 economic reforms, factory managers have had limited autonomy to set wages and offer incentives, but highly restrictive government regulations hinder any employment and productivity growth.

Korea Business Consultants has published their January newsletter.

Here is a link to the PDF.

Topics covered:
New Year Joint Editorial
Year of DPRK-China friendship
UNDP to resume DPRK operations
Buddhist Leader to Head DPRK’s ROK Affairs
DPRK Railroad Engineers Study in Russia
Housing Construction Progresses Apace
Orascom Opens Bank in Pyongyang
DPRK Tackles Clothing Shortage
“DPRK Harvest Best in Years”
China to Invest in NK Coal
US$ 3.75 Million in Australian Aid for DPRK
The Principles of the DPRK’s Foreign Trade
ROK Farmers Send Rice to DPRK
New SNG Kaesong Plant Idle
“Inter-Korean Trade Slides Due to Weak ROK Won”
ROK to Build Nursery in Kaesong Complex
DPRK Opens Consulate in Dandong
DPRK, China Foreign Officials Meet
Seoul Forum Highlights DPRK Films
“NK Martial Arts Team Best in World”
PUST Opening Delayed
DPRK TV Takes Note of Park Ji-sung
The Korean War

UPDATE 2/20/2009): According to the Daily NK:

“Special holiday provisions,” which have long been provided to all the people of North Korea on the three major holidays, Lunar New Year’s Day, Kim Il Sung’s and Kim Jong Il’s birthdays, and provided a rare moment of modest luxury in the year, are becoming scarce and discriminatory in their application by the authorities.

A source from Yangkang Province reported in a telephone interview with Daily NK on the 17th, “There were no holiday provisions in Hyesan provided to the citizens.”

The source explained some of the causes, “In the past, the authorities prepared holiday provisions and handed them over in one lump to each city, county and province. But now, factories, working places or collective farms prepare provisions for associated workers and farmers by themselves. In this situation, cadres cast their obligation to prepare and distribute provisions onto lower managers and take their own portions first. Accordingly, many other citizens cannot have been given any provisions.”

The source from Yangkang Province continued that, “The holiday provisions had continued, even though they were nominal, until now. It was unimaginable that there could be no holiday provisions because even on October 10, 2005, the 60th anniversary of the founding of the Party, and on September 9 last year, on the 60th anniversary of the nation’s’ founding, there were special provisions of some sort.”

Historically, there have generally been three kinds of special provisions on national holidays. The first one is holiday gifts for children consisting of candies, cookies or school supplies; the second is more substantial foodstuffs like pork or liquor for everybody; and lastly the General’s special gifts for cadres and some workers or farmers who achieve impressive results.

“Get holiday provisions for yourselves!”

Until right before Kim Il Sung’s death, on the three holidays, these gifts and provisions could be taken for granted.

However, as the economic situation turned ugly, the special provisions from Pyongyang were all suspended. Since 1998, the holiday provisions have been given only to citizens of Pyongyang, aside from one kilogram of candies and cookies supplied to elementary school students.

Since 2000, the authorities have ordered other work places, factories and collective farms to provide holiday provisions by themselves from their own funds.

The order created side effects. Factories and other work places started mobilizing workers and residents to collect beans, medical herbs and bracken under the pretext of making foreign currency. They allotted certain duties to the People’s Units, factories and farms. For cadres, it appeared to be a significant business.

Regarding the Lunar New Year’s Holiday provisions for 2009, the North Korean authorities issued an instruction on December 20th entitled, “With respect to preparations for 2009 Lunar New Year’s Holiday provisions distinctively under the responsibility of the committee of each level of the Party.” It came from the Guidance Department of the Central Committee of the Party.

The source criticized that, “The cadres have used this occasion to generate benefits for themselves. Households where holiday provisions were given on Lunar New Year’s Day were just those of the “marvelous” cadres’ of the National Security Agency, the People’s Safety Agency, the Ministry of Foreign Trade and the Party.”

“On the 16th, local cadres of the Party were taken rice, pork, liquor, bean oil, and cigarettes as holiday provisions. Besides gifts to the Party in the provinces by each department, cadres of the Guidance Department under the Party in local provinces were given socks and cosmetic products produced in China,” the source reported.

He released rumors of this custom circulating among the people, “Some say that the Party in Poongseo, Yangkang Province exported 300 square meters of timber in early January [nominally in order to prepare for holiday provisions]. And, others say that deer and wild boar were offered to officials of local committees of the Party, the NSA and the PSA of the provinces.”

“When holidays come, only the people without power suffer to make foreign currency to guarantee cadres’ special provisions. Otherwise, they have to offer bribes in order to avoid doing such activities.”

Kim Jong Il’s special gifts flow into seats of power

A source from North Hamkyung Province revealed on the 17th, “For the February 16 holiday, the state supplied the authorities of Pyongyang, Hoiryeong, Samjiyeon and Kaesong Special District with provisions. In Hoiryeong, they received a bottle of bean oil, 500 grams of candies and cookies, soap, toothbrush and toothpaste.”

He additionally reported that, “In some regions of South Hwanghwa and North Pyongan Province, two or three-days of food were provided around February 16.”

The regions where the special provisions were supplied were all selected by the authorities; Hoiryeong, because it is the hometown of Kim Jong Il’s mother, Samjiyeon is the county where Kim Jong Il insists he was born, and Kaesong is a place opened to South Korea so it may have been for propaganda towards foreign visitors.

The source explained, “In 2006, in evaluation meetings for anti-socialism group inspections in Hoiryeong, chairpersons of the People’s Units brought to the attention of the inspectors the fact that many citizens had left their hometown, the Hometown of the Mother (Kim Jong Sook), for China due to the grim reality of their lives. After a petition was reported to the General, on every holiday special supplies have not failed there.”

However, he said, “Although technically I live within the Hoiryeong administrative district, those who live in rural districts, including me, were excluded from the special provisions.”

Meanwhile, Kim Jong Il’s gifts to the official class have not ceased.

“On the General’s birthday, Chief Sectaries of cities, counties and provinces of the Party and other high level cadres in local provinces receive the General’s gifts. Additionally, persons who provided distinguished service to the state or exemplary workers also got gifts, but in Hoiryeong merely seven workers and farmers received special gifts of any sort.”

He criticized, “In the past it was a pleasure that even liquor was provided equally to all the residents, but now it is in the past. Now, it is a happy day only for cadres.”

He expressed the atmosphere of the holiday, “Some singing performances were held to commemorate the birthday by the Union of Democratic Women and Socialist Working Youth League, but there were not many people in the audience. There were not many people on the streets. It was a depressing holiday.”

Regarding this mood, an NGO activist who works for defectors in China analyzed hopefully, “This trend does not imply systematic change in North Korean society. There is one significant point; that in national business regarding Kim’s birthday, centralized authoritarian rule and control are crumbling down.”

UPDATE (2/19/2009): According to the Daily NK:

In commemoration of Kim Jong Il’s birthday on February 16th, 15-days of rations were provided to the citizens of Hyangsan and Woonsan in North Pyongan Province.

According to a source, the ration consisted of 2 kilograms of rice, 2 kilograms of noodles and the rest in corn for households with more than four family members. For small households, a kilogram of rice and noodles were given and the rest in corn. Recently, on the farms, provisions have not been sufficient and stealing has grown difficult, so the expectation of our citizens regarding the special rations have been high.

The source explained, “Since last year, with the increase in the number of guards on farms and the strengthening of house searches, the stealing of food from farms has been absolutely impossible.” For the last several years, as rations failed even for farmers themselves, stealing from collective farms as a means of survival had become commonplace.

The source continued, “Inspections have also been taking place at the county and provincial levels every November and December. With the strengthening of the regulations governing grain, stealing has become more difficult. If one is caught, he or she is taken to a labor detention facility.”

All the citizens of North Korea usually receive some form of commemorative product in honor of Kim Jong Il’s birthday, though it is not always in the form of food.

ORIGINAL POST: Although the practice has become inconsistent since the “Arduous March” of the late 1990’s, each year the DPRK distributes gifts or special provisions in celebration the two leaders’ official birthdays (Kim il Sung: 4/15 & Kim Jong il: 2/16). 

The value of one’s gift, however, allegedly depends on one’s rank in society.  A common farmer might receive a new pair of socks.  A senior Worker’s Party official probably receives a good deal more.  The distribution of alcohol is popular.  One estimate put the value of these special gifts at USD$20m. 

This year, Yonhap informs us that children in Pyongyang will receive domestically manufactured peanut candies:

Choson Sinbo, a Korean language newspaper in Japan that usually echoes Pyongyang’s policy, said peanut candies will be added to the gift list for children this year, following the completion of a production line in Pyongyang Vegetable-Processing Factory.

The foodstuff factory that produces noodle, bread and sweets was newly equipped with a peanut candy production facility at the end of last year as “a governmental measure to enhance the people’s diet,” the report said.

It said all of the ingredients are provided by the government.

Lee Seung-yong, a coordinator of Good Friends, a Seoul-based aid group for North Korea, said the cash-strapped North often has to collect ingredients from its citizens to make the gifts for them.

Only 20 percent of North Korean factories are currently operating due to the lack of electricity and raw materials, according to the Korea Institute for National Unification, a state-run think tank in Seoul.

Though some gifts are manufactured domestically by the people,  others are donated by foreigners.  Expensive gifts are imported by the leadership. 

Last year (February 2008), the Daily NK reported that locals actually resented receiving the gifts to some degree because all of the items were available in the marketplaces. Rather than restricting market activity and providing limited goods via the Public Distribution System (PDS), the story reports that people would prefer the government to simply make it easier to conduct business in the markets.

The DPRK has been placing a lot of focus on building/repairing “foodstuff factories” recently.  Here is a link to KCNA stories about “foodstuff factories” via the very helpful Stalin Search Engine.

Read the more here:
N. Korean children to get peanut candies on leader’s birthday
Yonhap
2/3/2009

15-days of Food on the Leader’s Birthday
Daily NK
Jung Kwon Ho
2/19/2009

Un-Socialist Inequality
Daily NK
Lee Sung Jin
2/20/2009

The Government started work on the Heroes Acre in 1981, one year after Independence. The design and artwork used at the site was done by seven artists from the Democratic Peoples Republic of Korea and ten Zimbabwean Artists.

Over 250 local workers were involved in the project at the height of construction. The black granite stone used for the main construction was quarried from Mutoko; a rural area situated about 140km Northeast of Harare. The Heroes Acre is protected under the Natural Resources Act.

See the Site on Wikimapia here. 

Learn more about the site here.

*This location will be added to the next version of North Korea Uncovered (North Korea Google Earth).  If readers are aware of other construction projects the DPRK has supported, please let me know.  I am especially interested in locating the North Korean restaurants in China, Thailand, Cambodia, Vietnam, and Bangladesh.  Are there others?

Institute for Far Eastern Studies (IFES)
ICNK Forum No. 09-2-2-1
2/2/2009

ASSESSMENT OF THE NORTH KOREAN ECONOMY FOR 2008

In the 2008 North Korean New Year’s Joint Editorial, Pyongyang established the year 2012 as “The Year of the Perfect Strong and Prosperous Nation,” while labeling 2008, “The Year of Turnabout,” and, “The Year of the Betterment of the Livelihoods of the People.” As the year marked the 60th anniversary of the establishment of the Democratic People’s Republic of Korea (DPRK), the regime projected a highly motivated façade, but there was no sign of new changes in the North’s economic policies.

Faced with the inability to produce any substantial results in the realm of international economic cooperation, North Korean authorities focused on how to put a positive spin on international conditions that were tied to the progress of 6-Party Talks. However, no visible measures appeared to emerge. Internally, North Korea’s chronic supply shortages drove further disparities between official and market pricing and monetary exchange rates as authorities were unable to stabilize the domestic economy. The growing global economic instability also caused economic policy makers to act more conservatively.

In 2008, North Korea’s food production in 2008 amounted to 4.31 million tons, recording a 7.5 percent increase over the previous year, while energy production is estimated to have grown by approximately 10 percent. Through joint development projects for North Korea’s underground resources, the North received raw materials for light industries (soap and shoes) amounting to 70 million USD in 2007, and 10 million last year. In addition, DPRK-PRC trade and inter-Korean economic cooperation both grew (DPRK-PRC trade increased significantly, while North-South cooperation grew only slightly), but it is difficult to measure the extent to which these increases impacted the North’s economy.

It appears that overall, North Korean trade and industry has improved since 2007, and the 2008 economic growth rate was positive. However, when estimating the North’s economic growth rate in light of the quickly rising exchange rate for South Korean won, DPRK economic growth for 2008 could be seen as a negative value.

While North Korea’s overall industrial production grew in 2008, when compared to previous years, and the primary reason for such was the refurbishment of equipment in most stable industries, development assistance and heavy oil aid as part of the 6-Party Talks, the provision of raw materials for light industries by South Korea, and the rise in prices on goods internationally.

Because of favorable weather conditions and increased production of fertilizer in the North, the agricultural sector showed a relative increase in production in 2008, despite the suspension of fertilizer aid from South Korea. Grain production was up 300 thousand tons, for an estimated total of 4.31 million tons last year. Boosted energy production was helped by improvements in hydroelectrical production and heavy oil tied to 6-Party Talks, and the provision of parts and materials for power plants, which considerably increased power production, at least in the first half of the year. This played an important role in the increase in industrial operations, as well. As electrical supply is the biggest obstacle to raising the operating rate of production facilities, more power resulted in overall production increases.

The construction sector has focused efforts on Pyongyang, and in particular on efforts to improve the lifestyles of its residents. Housing (averaging 20,000 family dwellings per year), restaurants, waterworks, roads, and other construction and repair projects have been aggressively undertaken.

North Korean authorities emphasized the science and technology sector in 2008, although it appears that the actual impact of this campaign topped out at the supply of some practical technology and the at production facilities, power plants, and other factories, and the promotion of modernization and normalization of industrial production.

At the mid-point of 2008, inter-Korean trade had grown by 1.2 percent compared to the same period the year prior, reaching 1.82 billion USD. The freeze on the annual supply of 400 thousand tons of rice and between 300~350 thousand tons of fertilizer from the South had a negative impact on the North’s food situation. On the other hand, DPRK-PRC trade from January-November 2008 jumped by 29.3 percent over the same period in 2007, considerably more than the 14.9 percent recorded in 2005, the 14.9 percent seen in 2006 and the 16.1 percent rise last year.

The increase natural resource development and improvements in core industries, the possibility of expansion of markets, and the advantage of low-cost labor give China, Russia, and other adjacent countries positive perceptions regarding investment in the North, and as Pyongyang continued to expand economic cooperation with these countries last year, it also improved economic relations with Europe as well as Egypt and other Middle Eastern countries.

PROSPECTS FOR THE NORTH KOREAN ECONOMY IN 2009

If one looks at North Korea’s domestic economic policies, one will see that basically, in the 2009 New Year’s Joint Editorial, North Korea’s domestic and international economic policies have not undergone any significant changes. However, in order to accomplish the goal of establishing a Strong and Prosperous Country by 2012, it is expected that all efforts will be poured into reviving the economy. Based on the Joint Editorial, this year, the North’s economic policy is not one of reform due to transformation of the outside environment, but rather a revival of pas, conservatively grounded economic policy. Regarding international economic relations, the 2008 Joint Editorial specifically stressed the building of an economically strong nation based on the principle of the development of external economic relations, but there was no particular reference to this in 2009.

In 2009, resolution of agricultural problems was again prioritized as the task most necessary for the realization of a Strong and Prosperous Nation by 2012. Along with this, the North’s economic policy for 2009 will prioritize the modernization and normalization of the economy’s ‘vanguard sector’, and it is expected to continue to strengthen efforts to revive the economy. As it continues to work toward creating an environment in which it can concentrate efforts on the building of an ‘Economically Strong Nation’, North Korean authorities are expected to issue new measures to strengthen the economic management system, including the planned industrial system, the distribution and circulation framework, and an effective market management system. The North is also expected to further emphasize efforts to modernize the People’s Economy, as it considers modern vanguard science and technology to be the answer to recovery from its current economic crisis.

There is a possibility North Korea’s foreign trade, including that with China, will shrink in the future, as its external economic activity is hit by the current international economic situation and the rising value of the U.S. dollar and Chinese Yuan. Just as was seen in 2008, with the shrinking growth of the Chinese economy, DPRK-PRC trade will be hit negatively. Progress on the rail link being promoted between Rajin and Hasan, as well as the redevelopment of the Rajin Harbor is also expected to face difficulties. This is likely to lead to further efforts by the North to expand economic cooperation with the EU and Middle Eastern countries.

Despite North Korea’s removal from the U.S. list of terrorism-sponsoring states, because sanctions against North Korea still remain, the North will need to make progress in non-proliferation, human rights improvement, and marketization in order to see real economic benefits from improved relations with the Obama administration. However, because of a lack of confidence regarding market reform, differing stances between the U.S. and DPRK on denuclearization, and deeply rooted mistrust, there is a more than a small chance that progress on the nuclear issue will be stretched out over the long term.

Looking at prospects for the main domestic economic sectors of North Korea, firstly, the amount of development in the energy and mining sectors could take a favorable turn if there is movement on the nuclear issue, and this would have an overall positive effect on the entire industrial sector. The drop-off of demand due to the international financial crisis could have a considerable impact on the North’s mining sector, making it difficult to see much growth past the levels seen in 2008.

In 2009, the supply-demand situation regarding North Korean grains is expected to improve over last year. North Korea requires 5.2 million tons of grain, and is expected to harvest 4.9~5 million tons, falling only 200~300 thousand tons short. This is an improvement over the 790 thousand ton shortfall the North suffered in 2008. However, the actual amount of grains distributed to the people may not increase, because some of the 2008 shortage was relieved through the release of emergency rice reserves, and so some portion of the 2009 harvest will need to be set aside to restock that emergency reserve.

In the manufacturing sector, the increase in electrical production and increase in large-scale equipment operations in metalworks, chemicals, construction materials, and other heavy industries, the supply of materials for light industries as well as fertilizer will be extended, but the reduction of inter-Korean economic cooperation and foreign capital will mean a reduction in the ability to import equipment and materials, making it difficult to meet 2008-level growth in industrial production numbers.

In the construction sector, housing construction in Pyongyang and other areas will not fall off suddenly, but with the anniversary of the founding of the Party Museum upcoming and the impact of the furious construction activity that has been underway, it is likely to slow down in 2009. With North Korean authorities restricting private-sector economic activity, controlling the size of markets, and other measures controlling commerce in the North are expected to strengthen, which will considerably restrict anti-socialist commercial activity. To what extent official commerce networks will absorb this activity will be pivotal.

Trade between North Korea and China is expected to shrink as the global economic crisis drives down the price of raw materials that the North exports to the PRC. Following the North Korean authorities’ enforcement of a measure reducing inter-Korean economic cooperation on December 1, 2008, without improvement in the North Korean nuclear issue, and in U.S.-DPRK relations cooperation between Seoul and Pyongyang will gradually shrivel. Trade with other countries is also expected to fall as a result of the current global economic situation. Therefore, reduction of inter-Korean economic cooperation, North Korea’s principle provider of foreign capital, and sluggish trade between Beijing and Pyongyang will weaken the North’s foreign reserves supply-and-demand situation.

As for the investment sector, if North Korea is to succeed in its push to build a Strong and Prosperous Nation by 2012, it must attract foreign investment through aggressive policies of opening its economy. In order to improve the investment environment, Pyongyang must work more aggressively to resolve the North Korean nuclear issue, but despite the demands of the surrounding countries, it is likely North Korea will insist on recognition as a nuclear power, making it difficult to expect progress on this front. Therefore, foreign investors’ interest in North Korean markets, and North Korea’s assention into international financial institutions through improved relations with the United States, appears to be a long way off.