North Korean Economy Watch

Stephan Haggard posts some economic data from the Kaesong Industrial Zone. I repost most of it here for archival purposes:

According to the MOU, the average monthly wage at KIC has reached $128.3 as of the first half of 2012. This marks a steady increase from $68.1 in 2006, $71.0 in 2007, $74.1 in 2008, $80.3 in 2009, $93.7 in 2010, $109.3 in 2011. One source of the increase is a built-in escalator clause on the minimum wage payment, which started at $50 and has increased 5% a year over the last six years. But that only gets you to about $67 for this year.

The remainder of the observed increase is apparently the result of additional payments for overtime, which has been rising dramatically. Average weekly working hours were already 55.2 hours in 2006 but now stand at 61.6 in 2012 (up to July). If we knew that these additional hours were the result of the free choices of hard-working, upwardly mobile workers we would still probably find it a little excessive. But of course, the advantages of working in Kaesong are such that North Korean authorities have absolute power to hire and fire at will. There is no way of knowing whether workers would choose this regimen if they were organized or not.

But the story is much worse, of course, because we don’t ultimately know what share of these wage payments actually end up in the hands of the workers in the complex. Wages are paid in U.S. dollars to the North Korean authorities by the South Korean companies operating in the complex. 45% of the wage bill–15% for “social security” and 30% for “socio-cultural policy entitlements”–flows into the regime’s coffer, while the remaining 55% is supposedly given to the workers in either DPRK won or coupons.

But not so fast. A crucial question is the exchange rate at which workers are paid and the value of the “coupons” they receive. We hardly need to state the obvious: North Korean workers are not getting paid the won equivalent of their dollar salaries at anything resembling the shadow-market exchange rate that reflects actual scarcities. At least in the Yonhap report, the MOU makes no mention of what the real dollar equivalent of won payments are using a realistic exchange rate. But given the country’s high inflation and rapid depreciation of the exchange rate—see my colleague Marc Noland on this—the dollar value of what North Korean workers actually receive could be only a small fraction—even a very small fraction—of the stated dollar wage .

Why has Kaesong stayed open? The answer lies in a pretty straightforward political economy calculus on both sides. For the South, Kaesong is industrial policy for labor-intensive firms. For North Korea, it is a cash cow that even hardliners have been loath to push the way of the Mt. Kumgang project. Since 2004, total wage payments for North Korean workers in the KIC has totaled $245.7 million, rising from $380,000 in 2004 (the first year of operation) to $61.76 million in 2011 and $45.93 million in the first half of 2012. For Pyongyang, even hardliners can see that this is a no-brainer.

UPDATE 2 (2012-11-19): Writing in 38 North, Kyung-Ae Park offers some more details on the program which brings these North Korean students to Canada:

The UBC program has been hosting North Korean professors since 2011 as part of a long-term knowledge sharing exchange initiative. For its inaugural effort, KPP hosted six North Korean scholars, five from the Kim Il Sung University and one from Wonsan Economic University. The scholars, who arrived in early July and studied at UBC through December 2011, took English courses during the summer and business and management courses from September focusing on international trade, management, finance, and economics. The curriculum consisted of regular, unmodified courses also attended by UBC students. As part of the curriculum, participants completed a group research project with faculty supervision on an aspect of international trade/finance stemming from their studies at UBC. In addition, they had opportunities to take field trips, and meet with leading individuals in Canada’s financial, business, and legal communities, as well as fellow academics.

Now in its second year, KPP is hosting another group of six participants, this time from Kim Il Sung University, the University of National Economy, and the Pyongyang University of Foreign Studies. As in the previous year, these scholars will be provided with an in-depth education of the international economy and policies implemented by other countries. With this second year of the program well underway, UBC has emerged as a leader in academic engagement with North Korea. There is great optimism that KPP will serve as a possible model for other educational institutions interested in exploring knowledge sharing programs with North Korea in the future.

Read the full story here.

UPDATE 1 (2012-7-20): Yonhap reports that the the Canadian-run program of bringing North Koreans  to the University of British Colombia to learn about economics is continuing. According to the article:

Six professors of leading North Korean universities are staying in Vancouver to study capitalism at a Canadian university on a six-month program, the program director said Friday, drawing fresh attention to the North’s possible transition under its Swiss-educated young leader.

The economics professors from three North Korean universities arrived in Canada earlier this month to take courses at the University of British Columbia (UBC) in the fall semester, which begins in September, after a two-month language course, Professor Park Kyung-ae, director of the Center for Korean Research, said.

“They will mainly study international business, economics, finance and trade,” Park told Yonhap News by phone, without giving further details of their identifications.

The elite universities include Kim Il-sung University, the top university named after the country’s founding leader, the People’s Economics University and the Pyongyang Foreign Language College, Park said. All the institutions are located in the North’s capital, Pyongyang.

They are the second group of visiting professors to take the courses under the Canada-DPRK Knowledge Partnership Program, which Park helped launch at UBC last year. DPRK stands for North Korea’s official name, the Democratic People’s Republic of Korea.

A group of six professors, five from Kim Il-sung University, attended the program in the fall semester last year, which included meetings with CEOs of Canadian law firms, banks, insurance companies and energy firms.

“There was no such long-term program related to North Korea in the past,” said Park, who visited the communist state last month. “The professors who completed last year’s course did their best and had good relations with other professors and faculty members. As they successfully finished the course, we were able to continue the program this year as well.”

ORIGINAL POST (2011-8-18): Just as Canada tightens sanctions on the DPRK, news comes out that the Canadians are running a very worthwhile program–teaching economics to North Korean professors! Let’s hope this program can be expanded!   According to Yonhap:

Six North Korean professors are studying economics and other related subjects at a university in Canada on a months-long program initiated by the school, the program director said Wednesday, opening a rare opportunity for the people of the repressive regime.

Professor Park Kyung-ae, director of the Center for Korean Research at the University of British Columbia, told Yonhap News Agency the North Koreans arrived last month to study international business, international economics, finance and trade. Five of the visiting professors teach these subjects at Kimilsung University, the elite North Korean institution named after the country’s founding leader, while one teaches at a university of economics in the eastern city of Wonsan, she said, declining to give further details.

The Japanese newspaper Asahi Shimbun reported earlier that the six professors from Kimilsung University were studying on an MBA course at the university in Vancouver. In fact, Park said the North Koreans will study four subjects at the undergraduate and postgraduate levels starting in September, after completing a two-month English language course.

The visiting professors are the first group to have been invited under the Canada-DPRK Knowledge Partnership Program, which Park helped launch at UBC last year. DPRK stands for North Korea’s official name, the Democratic People’s Republic of Korea.

“The program is very unusual in that it allows North Korea’s college professors to conduct research (overseas) on a long-term basis,” Park said, saying the professors will stay for a total of six months. “Other universities in North America are paying close attention to the program, and through it, I plan to push for exchanges between university officials of the two countries.”

Park, who has traveled to Pyongyang on several occasions since the mid-1990s and hosted North Korean delegation visits to Canada, said she believes educational exchanges are an important mechanism through which the two countries can improve ties. She noted that North Korea and Canada established diplomatic relations in 2001, but their ties have faltered over Pyongyang’s nuclear weapons program.

Since the 1990s, the North Korean regime has been known to send a selected few, mostly government officials, to study the market economy in Switzerland and other countries. However, these people have only been allowed to stay for several weeks, apparently due to fears they will try to escape the control of their repressive regime.

According to Relief Web:

On 9 October 2012, H.E. Alexander A. Timonin, Ambassador of the Russian Federation to DPRK, visited Pyongyang Biscuit Factory to formally hand over a generous donation of Russian wheat flour to WFP’s work in the country.

The donation of 6,000 metric tons of wheat flour is valued at US$5 million. Wheat flour is an essential ingredient in the production of nutritious biscuits that are distributed to well over a million children in nurseries, kindergartens and primary schools, as part of WFP’s project to address chronic undernutrition in DPRK.

Wheat flour is also used in DPR Korea to produce Supercereal – a specialised nutritious blended food – for pregnant and nursing mothers.

During the ceremony, Ambassador Timonin confirmed Russia’s engagement in assisting the most vulnerable in DPRK through its contribution to the work of WFP.

“We are very interested in the activities of WFP in DPRK and are very satisfied with its production of fortified food for children and mothers with the wheat flour donated by Russia,” he said. “The Russian Federation will continue to provide humanitarian contributions to WFP, supporting it`s activities in DPRK.”

Previous posts about aid to the DPRK in 2012 can be found here.

Previous posts about Russia can be found here.

This fall Marcus Noland has posted three blog entries which feature DPRK trade statistics with China, the European Union, and Russia. I have put the graphs from these posts here as both an archive and as a quick reference for myself. See Dr. Noland’s original posts (linked above) for his analysis.

Chinese Luxury Goods Exports to the DPRK (Published 2012-9-17):

European luxury exports to North Korea (Published 2012-10-18):

Russian luxury good exports to North Korea (Published 2012-11-14):

An FAO/WFP Crop and Food Security Assessment Mission (CFSAM) visited the DPRK from 2012-9-24 to 2012-10-18 (25 days). They assessed the 2012 main crop harvest; forecasted the 2013 production of winter and spring crop; estimated cereal import requirements for the 2012/13 marketing year (November/October); assessed the household food-security situation and estimated food assistance needs.

Read the full report here (PDF).

It is full of data/statistics and well worth reading. You can find even more information on my DPRK Economic Statistics Page.

Here is media coverage of the report: Associated Press 1, Associated Press 2, Yonhap 1, Yonhap 2.

Institute for Far Eastern Studies (IFES)
2012-11-8

North Korea is developing its tourism industry as a way to increase its foreign currency earnings. Recently, there appear an increasing number of tour packages targeted attracting Chinese visitors to the DPRK, with new tour packages actively being promoted.

The Korean Central News Agency (KCNA) reported on October 8 that there are new professional tour programs that are gaining international attention. In the article, new and creative tours were featured, including Mount Paektu tours with [Air] Koryo Airlines and bicycle tours. Mini-golf tours are also reportedly scheduled for next year.

Along with North Korea, Chinese tour companies are also taking interest in this effort and are developing various tour packages via air, land, and sea routes. In June, charted plane tours from Shenyang started, and now new tours from Dalian to Mount Kumgang are also being launched.

Across the border from the North Korean city of Sinuiju is the Chinese city of Dandong, where there are over ten travel agencies that operate daily train tours between the two cities. In fact, during holidays and weekends, more and more Chinese tourists are flocking to the China-North Korean Friendship Bridge that traverses the Yalu River, connecting the two cities.

The recent rise of Chinese tourists to North Korea is attributed to the aggressive marketing schemes of the North Korean government. The State Tourism Bureau teamed up with a Chinese travel company to run a tour to Mt. Paektu. North Korea, faced with international economic sanctions, has limited means to earn foreign currency. The new Kim Jong Un regime is actively seeking ways to earn foreign capital through the tourism industry. Chinese companies are responding positively and swiftly to this change and are coming up with new tourism programs.

North Korea is utilizing its image as ‘closed country’ and ‘hermit kingdom’ to stimulate curiosity among tourists. More and more Chinese are able to enter North Korea without a visa (requiring only their passports) and this is adding to the spike in Chinese tourists to the country. Most Chinese travel agencies are able to make all the necessary travel arrangements to North Korea in less than a week once the interested person submits his/her passport and photos.

However, there are comments from returning visitors that tours are limited to historic and famous sites and somewhat insular as contact with the locals is prohibited. North Korean national security agents accompany all tour groups. Despite this fact, many experts expect the number of Chinese visitors to the DPRK will continue to increase in the future.

*NKeconWatch: For additional information, see “North Korean minders endure Chinese invasion” in the Asia Times (2012-11-8).

Download the full report (PDF) here.

I have also added it to my “DPRK Economic Statistics Page”.

Here is the Executive Summary:

The last nationwide survey including nutrition indicators was the Multiple Indicator Cluster Survey (MICS) carried out in 2009. It showed that 32.4% of children

The present survey was therefore needed to update the indicators for the population nutritional status. All 10 provinces have been included. Data collection was done from September 17th to October 17th 2012.

The methodology is based on SMART and MICS surveys. It is a clustered, stratified by provinces, two-stage sampling survey. The target population includes children under 5 and their mothers. The sample size per province is 400 children in Pyongyang municipality and 812 children in all other provinces for most indicators.

Chronic malnutrition, despite a modest drop since MICS 2009 (from 32.3% to 27.9% at national level) remains in the ranges labelled ‟medium‟. Stunting has irreversible impact on the development of children as a result on the Country development. The prevention of stunting in early life (starting during or even before pregnancy) as well as the prevention of anaemia in mothers and their children (mainly those under 2 years old) through different multi-sectoral interventions combining nutrition, health, WASH, social protection, food security and agriculture requires more efforts and resources.

The survey also shows a picture of the acute nutritional status of children modestly improved since 2009. The situation is not critical and does not suggest emergency operations. However, attentions need to be paid to such factors as essential medicines, WASH situation and food security which affect the vulnerable children. The presence of acute malnutrition in women is also of concern. Programmes like the management of acute malnutrition at hospital and community levels (CMAM) need to be continued and expanded. Provision of nutritious food for children at institutions should also continue. On-going monitoring of the nutritional situation is important to identify the trends and changes in the situation and bring support as soon as possible when the situation is negatively changing.

In reference to the MDG 1, the achievement in decreasing underweight over time (from 60.6% in 1998 (MICS1 to 15.5% in the actual survey), as well as chronic and acute malnutrition, are primarily due to concerted efforts between the Government, the UN Agencies and others partners in DPRK in addressing the different causes of malnutrition. But malnutrition still remains and requires continued and strengthened interventions on chronic and acute malnutrition in order to have more impact on the underweight prevalence and to ensure a more optimal growth to the children.

According to Yonhap:

North Korea imported US$170,000 worth of firearms from Switzerland in the first half of this year, Seoul’s trade agency said Friday.

The communist country brought in about $100,000 of guns such as shotguns, air and gas rifles, and revolvers while importing around $70,000 worth of firearm components, according to the report by the Korea Trade-Investment Promotion Agency, or KOTRA.

The state-run agency said the North had no record of firearm imports from Switzerland since 2009 until last year when it started to ship them in the first half.

Some experts said the new trend may be due to the fact that North Korean leader Kim Jong-un spent his adolescence in the country.

Read the full story here:
N. Korea imports US$170,000 of firearms from Switzerland
Yonhap
2012-10-26

Institute for Far Eastern Studies
2012-10-25

Recently, eight companies in the Kaesong Industrial Complex (KIC) informed that they received tax collection notices, a unilateral decision made by the North Koreans.

The Ministry of Unification and KIC reported that out of the 123 companies, 8 companies were informed by the North Korean authorities to pay about 160,000 USD in total in taxes.

Two companies out of the eight notified companies already paid close to 20,000 USD to the North Korean tax authorities.

On top of taxation, 21 companies were notified to submit additional tax documents. This may be to collect additional information for future tax collection purposes.

The tax authorities are also requiring companies to submit documents related to show proof of purchase of raw materials, and submit cost analysis documents and a copy of bank statements showing the history transactions.

Last August, the Central Special Direct General Bureau (CSDGB) notified the Kaesong Industrial District Management Committee of new tax bylaws, which enforces a fine up to 200 times the amount of accounting manipulation and abolish the retroactive taxation system while increasing the number of documents for submission. Furthermore, the North is threatening to restrict access to the KIC, if companies fail to pay owed taxes or do not submit requested documents.

In addition to imposing fines for tax frauds, new tax bylaws demanded by the CSDGB included enforcement of additional taxes in the name of corporate income tax, sales tax, and other taxes.

The unilateral decision by the CSDGB to amend bylaws is a violation of Kaesong Industrial District Law, which requires any revision of the laws must be negotiated between the North and the South. Another problematic issue is that tax imposed on the companies is based on North Korea’s own estimation rather than tax reports submitted by the companies of the KIC.

For the first time last year, tenant companies in the KIC recorded an average operating profit of 56 million KRW, finally operating in the black after years in deficit.

Pictured Above (Google Earth): Two Google Earth satellite images of Hoeryong (L: 2002-4-27, R: 2008-12-25) which show the construction of residential apartments buildings as well as the town’s new main market.

Hoeryong is a town in North Hamgyong Province that lies across the Tumen (Tuman) River from China.  According to North Korean political narratives it is also the childhood home of Kim Jong-il’s mother, Kim Jong-suk.  It has been the the site of a large construction boom in the last five years, and now, according to the Daily NK, Chinese tourists are being brought in on very limited itineraries. According to the article:

The Hoiryeong source explained, “North Hamkyung Province ‘shock troops’ and military unit construction teams have been here for three years on Kim Jong Il’s orders for the construction, and now it is finished.” Local households were asked to contribute 12,000 North Korean Won each to the construction effort, he added.

Hoiryeong used to have few buildings with five floors, but now it has a considerable number of new four and five floor apartment buildings built around the center of the city, as well as a number of newly built commercial facilities. Buildings in the downtown core have also been spruced up with external lighting, a project that began last April.

There are a number of new restaurants in the area. One, ‘Hoiryeonggwan’, has been decorated in the style of Pyongyang’s famous ‘Okryugwan’, something that Kim Jong Il is said to have ordered in December 2010 when he visited the construction site. Elsewhere, restaurants serving spicy marinated beef, duck, dog and Chinese food have also opened their doors.

However, these restaurants only currently open on the weekend or when Chinese tour groups make an advanced reservation, according to the source, who revealed that local people regard the construction effort more as an attempt to generate tourist revenue than to make it a real ‘model city’, as the official propaganda claims.

“Chinese tourists come, then they visit the statue of Kim Jong Suk and the place where she grew up, and then they are taken to one or other of the restaurants,” the source said. “They drink and make merry then go, all without visiting any scenic spots; thus, the authorities make money.”

As with other tourist operations, it is possible that this small step will lead to a softening of restrictive tourism regulations and potentially the arrival of Western tourists.  But don’t hold your breath!  Chinese tourists have been visiting Sinuiju on a regular basis, but westerners are generally still prohibited from touring the city

Additional Information: 

1. On the opening of Hoeryong’s “Food Avenue”

2. Succession not popular in Hoeryong

Read the full story here:
Model City or Tourist Trap: Hoiryeong Sparkles
Daily NK
Choi Song Min
2012-10-15