Archive for the ‘Joint Ventures’ Category

North Korea’s largest overseas restaurant closed down

Friday, February 16th, 2018

By Benjamin Katzeff Silberstein

The largest of North Korea’s overseas restaurants has closed, and its workers have gone home, reports Daily NK. Those formerly employed in North Korea’s overseas joint ventures abroad, and as overseas labor with other companies, have been returning home in stages since sanctions passed by the UNSC last September forbade joint ventures with North Korea.

These restaurants are (were?) an interesting phenomenon. I’ve visited them in Vietnam, Cambodia, and China, and the last time I went to one was in 2013. At the time, it was packed with tourists, mostly from South Korea, and some locals. This was generally my experience with these restaurants from the first time I visited one in 2008, but of course I can’t say for sure whether that impression was representative of a general picture.

The last time I went to one was in 2016, in Beijing. On a regular Saturday night, the place was virtually empty, save for a couple of middle-aged men donning Kim Il-sung badges, drinking beer and chain smoking. Our party got our own room, complete with karaoke, even though we didn’t ask for one, simply because the place was so empty. I got a hint about what the reasons might have been earlier in the day when I called to make a reservation: since I spoke to the staff in Korean, they felt obligated to inform me that customers from South Korea were no longer welcome. This business-killing restriction was likely imposed after the mass defection to South Korea, from one of the restaurants earlier that year. For what it’s worth, this particular one – in central Beijing – seemed like a dying endeavor over a year before the sanctions, though one can’t generalize from just one data point.

Here’s Daily NK’s story:

Ahead of the Lunar New Year holiday, Daily NK obtained photos of employees of a recently-closed North Korean restaurant called Pyongyang Koryo Pavilion in the Chinese border city of Dandong returning home to North Korea.

Pyongyang Koryo Pavilion was the largest of North Korea’s overseas restaurants, and originally employed 200 people. However, the restaurant shut down in November due to intensifying international sanctions targeting North Korea for its nuclear and missile development. Its employees have continued to return to North Korea in groups.

“Management started repatriating the workers in groups following the Pyongyang Koryo Pavilion’s closure, but some of them went to work at other restaurants,” a source in China close to North Korean affairs told Daily NK on February 14. “The 30 people returning ahead of the Lunar New Year holiday were part of the contingent that had been working at other establishments following the shutdown of Pyongyang Koryo Pavilion.”

In September 2017, China’s Commerce Ministry ordered the closure of North Korean companies operating inside the country within 120 days of UN Resolution 2375, which passed on September 11, 2017. The ministry also announced that Chinese joint ventures with North Koreans and North Korean companies would be closed.

Upon the realization that the Pyongyang Koryo Pavilion would likely not be resuming operations, the North Korean authorities began to exfiltrate the workers in stages.

“They’re heading back to their hometowns, where their families live, but they don’t look very happy about it because they’re losing the opportunity to earn money abroad.

Article source (with pictures):
More North Korean overseas workers return home
Seol Song Ah
Daily NK
2018-02-16

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Hay, Kalb and Associates suspending operations

Monday, August 1st, 2016

According to Reuters:

North Korea’s first and only law firm set up by a foreigner, Hay, Kalb & Associates, will suspend operations, the firm’s principal said in a statement on Monday, as the country grows increasingly isolated.

The firm is a joint venture between the North Korean state and British-French citizen Michael Hay, who has represented foreign clients in the capital, Pyongyang, for 12 years.

Hay said he had made the decision based on “business and geopolitical principles”.

“This decision has been taken only after lengthy and thorough deliberation and an examination of the continuing deterioration of inter-regional relations pertaining to the Korean peninsula,” Hay said in a statement.

“It is not unreasonable to assume that no meaningful change or indicator of change in relations shall occur, if at all, until well after the United States Presidential Inauguration, on January 20, 2017,” Hay said in the statement.

North Korea has come under growing diplomatic pressure since its January nuclear test and a long-range rocket launch in February, which led to a new U.N. Security Council resolution in March that tightened sanctions against Pyongyang.

The majority of Hay’s clients are foreign investors, many of whom have been negatively affected by the sanctions, Hay told Reuters.

“Sanctions are hurting legitimate foreign investors. There still is no credible, consistent evidence I see of DPRK companies hurting,” Hay said. DPRK stands for Democratic People’s Republic of Korea, the North’s official title.

Very few foreigners live or work in North Korea. Those who do are usually members of the diplomatic or NGO community, although a small group of foreign investors have maintained a quiet and steady presence inside the country.

The suspension takes effect from midnight on Monday, Hay said, with an official suspension scheduled for Aug. 14, the firm’s 12-year anniversary.

Hay, who bills his firm as the only foreign-invested firm in North Korea, said he will still maintain an office in Pyongyang.

North Korea has more than 8,000 law graduates, according to an official 2008 census, half of whom are based in Pyongyang. Most are employed by the state.

Read the full story here:
North Korea’s only foreign-founded law firm suspends operations
Reuters
James Pearson
2016-8-1

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Orascom (OTMT) loses control of KoryoLink

Friday, November 20th, 2015

UPDATE 2 (2016-1-1): According to the Wall Street Journal:

Egyptian tycoon Naguib Sawiris made billions of dollars from a global telecommunications empire that operated in authoritarian states from Zimbabwe to Pakistan. Now he is being dealt a potentially painful setback by one of the global economy’s biggest pariahs: North Korea.

Mr. Sawiris’s Orascom Telecom Media and Technology Holding SAE built a highly profitable mobile phone business with around 3 million customers in the isolated nation, as cellphones became popular with wealthier North Koreans and the state eased restrictions on communications. The business earned around $270 million before taxes and depreciation on $344 million in revenue in 2014.

But in the last few years, a state-run competitor emerged in North Korea, and Cairo-based Orascom hit problems trying to repatriate profits. Orascom said in a November filing in Egypt it had lost control of its 75%-owned North Korean venture, Koryolink, and struck the venture from its balance sheet, removing hundreds of millions of dollars in assets.

Mr. Sawiris, chief executive officer of both Orascom and the North Korean venture, is now trying to negotiate a solution. “We are still hopeful that we will be able to resolve all pending issues to continue this successful journey,” he said in a statement accompanying the filing.

Orascom’s auditor, however, cited the “futility of negotiation” with North Korea over Koryolink’s assets, which the company said were worth $832 million at the end of June, including cash in North Korean won worth $653 million at the official exchange rate. Koryolink, which now accounts for 85% of Orascom’s revenue and profit, says it hasn’t been able to send any funds out of North Korea in 2015 due to local currency controls and international sanctions targeting Pyongyang’s nuclear weapons program.

Mr. Sawiris didn’t respond to requests for comment and Orascom declined to make him available for interview. A spokesman for Orascom reiterated the company’s public statements and didn’t respond to further questions. North Korea hasn’t referred to the dispute in its state media and relevant officials couldn’t be reached for comment.

How North Korea resolves the dispute could bear on its plans to cultivate foreign investment to develop the moribund economy. In recent years, Pyongyang has created more than 20 special economic zones for investors and announced local regulations intended to reassure foreigners.

In November, North Korea state media said foreign firms would be able to repatriate profits from one zone in the far northeast of the country “without restriction.”

The setback for Mr. Sawiris, 61 years old, underscores the risk of doing business in North Korea, where foreign firms have complained that property and profits have been appropriated by the government. In 2012, a Chinese mining company said North Korea arbitrarily took over its metal-processing facility in the country. Pyongyang in turn publicly accused the firm of failing to meet investment commitments.

Orascom says talks with the North Korean government to resolve its difficulties have included a possible merger with the rival carrier, Byol. However, North Korea has indicated it wouldn’t give Orascom management control of the combined entity and those talks have stalled, the Egyptian company said in November board minutes, reviewed by The Wall Street Journal. As a result, “control over Koryolink’s activities was lost” according to accounting rules, the company said in its latest earnings report.

Few companies venture into North Korea. But for the outspoken Mr. Sawiris—who describes himself as a “freedom fighter” on his verified Twitter profile, and who has experience operating in difficult environments—a bet on the hermit kingdom made sense.

Since 1997, Orascom has built and run mobile networks in more than 20 countries across Africa, the Middle East and the Indian subcontinent. Its strategy: Load up on debt to build networks quickly in risky markets with little or no infrastructure, betting on rapid growth and strong returns, then sell when the market matures and more players materialize.

Orascom operated in many politically unstable nations such as Yemen and Bangladesh. In most cases, the gamble paid off. In 2003, Orascom paid $5 million for one of Iraq’s first mobile network licenses. Its local partner faced kidnappings of staff and attacks on property from insurgents, but in 2007 Orascom sold its Iraq operations for $1.2 billion to a Kuwaiti company.

There have been some setbacks. Orascom’s joint venture in Syria with a company run by a cousin of President Bashar al-Assad fell apart in 2002 when a Syrian court handed the Egyptian company’s share of the venture to the local partner.

In 2011, Mr. Sawiris sold most of his telecommunications assets to Russian mobile operator VimpelCom Ltd. in a deal worth $6 billion. Koryolink was one of the few assets he kept.

Orascom’s operations in North Korea began when the country awarded Koryolink the rights to operate its only mobile network from late 2008 through the end of 2012. North Korea had scrapped an earlier project in the country with a Thai firm in 2004, because of fears the network was vulnerable to spies.

Koryolink started with around 18 foreign staff based at a hotel in the capital city, according to Madani Hozaien, Koryolink’s chief financial officer from late 2008 to mid-2009. North Korea’s tight restrictions on travel made it difficult to manage network facilities and deals with local counterparts were hard to put together, he said.

“Once we had an agreement with one group, another team would appear and we’d have to start again,” he said.

Ihab Shafik, a human resources and administration manager for Koryolink from 2009 to 2012, said the company’s North Korean staff sometimes operated independently. “They built GSM [Global System for Mobile communications] towers without informing us and we discovered them later,” he said.

North Korean authorities gradually from 2008 allowed most members of the public to sign up for mobile service, although they can only make domestic calls and don’t have Internet access.

While mobile phones remain very expensive for most North Koreans, visitors to Pyongyang report that they’re a common sight. Defectors from the country say they have become increasingly important information tools for traders as North Korea’s unofficial market economy has grown in recent years. North Korea state media has even touted the country’s own smartphone, although it is generally considered a rebranded Chinese model.

Orascom’s problems in North Korea appear to have built during the final year of its exclusivity clause in 2012. Koryolink’s annual report for the year noted “restrictions on cash transfers from local currency” in explaining a $272 million cash balance held inside the country, that more than doubled to June 30.

The company’s board meeting to ratify first quarter results in 2015 was postponed by over a month “due to the delay of the negotiations with the North Korean side to solve the problems arising out of the transfer of dividends, the currency exchange rates and the operational problems that has recently emerged,” minutes from the meeting reviewed by the Journal said.

Orascom’s share price fell sharply on the Egyptian stock exchange after the company announced it was removing the North Korean operations from its consolidated earnings. The price has risen recently after Orascom announced plans to buy two financial companies, part of Mr. Sawiris’ effort to move away from telecommunications.

Experts on the North Korean economy say Orascom’s difficulty in repatriating funds is largely due to North Korea’s inability or reluctance to convert Koryolink’s cash to foreign currency from North Korean won at the official exchange rate. North Korea suffers constant shortages of foreign exchange and its own currency is worthless outside its borders.

In 2013, Orascom also was caught up in U.S. sanctions on North Korea, when a bank it had set up with a North Korean partner, which Koryolink uses for financial transactions, was barred from accessing the U.S. financial system.

Here is additional coverage in the Chosun Ilbo.

UPDATE 1 (2015-12-11): Orascom CEO claims to still control KoryoLink, but cannot obtain hard currency or get it out of the country.

ORIGINAL POST (2015-11-20): Martyn Williams broke the story here.

The first problem is that Orascom could not repatriate its profits:

Orascom’s efforts to get its profits out of North Korea have been unsuccessful, partially because of international sanctions imposed on the country but mainly by the government’s refusal to let the money go.

To transfer money out of North Korea, Orascom needs permission from the government and it hasn’t been granted, despite it being a partner in the joint venture.

The government hasn’t acted because it can’t afford to.

The profits are held in North Korean won, but the currency isn’t traded internationally and the government’s official rate is set artificially high, at 100 won to the U.S. dollar. At that rate, Orascon’s holding at the end of last year was worth $585 million.

But at the black market exchange rate, which is effectively the real value of the currency in North Korea, the cash is worth only $7.2 million. And therein lies the problem. The government can’t afford to pay the money at the official rate, and it can’t be seen to officially recognize the black market rate. So the two sides have spent months locked in talks about what to do.

Secondly, the DPRK government launched a second cell phone network to compete with KoryoLink, and efforts to merge the companies have been successful:

The issue came to light in an auditor’s report in June, and a month later Orascom dropped a bombshell: It said the North Korean government — supposedly its close partner — had set up a second carrier to compete with Koryolink.

With its options limited, Orascom entered merger talks to combine Koryolink with the new carrier. The North Korean government has agreed to the move in principle, but so far nothing has happened.

What’s more, the North Korean government has apparently proposed that it be the majority partner in any new venture that’s formed.

That led to a dramatic statement from Orascom when it reported its financial results Monday — “in the group management’s view, control over Koryolink’s activities was lost.”

Sawiris appears to hold out hope, but he might be out of moves.

“We are very proud of the success of our operation ‘Koryolink’,” he said in a statement. “We have around 3 million people today carrying our phones in the DPRK. We are still hopeful that we will be able to resolve all pending issues to continue this successful journey.”

Anna Fifield also followed up in the Washington Post and reported on the name of the new KoryoLink competitor:

This comes after Orascom discovered that North Korea was starting a competitor to Koryolink called Byol, and then began discussions about merging it with Koryolink, thus presumably extracting even more money from Orascom.

Byol (별) translates to English as “Star”.

Here is the OTMT financial report which explains the company’s position (PDF).

Here are screen shots of the relevant sections in the report:

OTMT-report-2015-11-associate

And

OTMT-report-2015-11-other-operator

OTMT-report-2015-11-other-operator2

A small correction needs to be added to the OTMT report, the Central Bank does not set the official exchange rate. That is set by the Foreign Trade Bank.

As Marcus Noland and I have pointed out, North Korea needs a big FDI win to inspire more large-scale foreign investment and modernize its investment regulatory framework, but debacles like this, Xiyang, and the KIC (referring here to the fact that it was too entangled in political risk to be a reliable investment without official subsidies and guarantees) reinforce the view that the DPRK is still too risky to become an attractive investment hub–and this excludes additional problems owing to the country’s weapons programs and human rights abuses.

 

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On recent economic developments in the DPRK

Thursday, October 29th, 2015

James Pearson writes in Reuters:

When North Korea’s late “Dear Leader” Kim Jong Il opened the Pothonggang Department Store in December 2010, he called on it to play “a big role” in improving living standards in the capital Pyongyang, official media said.

Five years later, judging by the long lines inside the three-storey store that sells everything from electronic gadgets and cosmetics, to food and household goods, the Pothonggang is meeting Kim’s expectations – at least for privileged Pyongyang residents.

But the department store also starkly illustrates the extent to which the underground market has become the new normal in isolated North Korea. And that poses a dilemma to the Kim family’s hereditary dictatorship, which up until now has kept tight control of a Soviet-style command economy, largely synonymous with rationing and material deprivation. Now that the black market has become the new normal, Kim Jong Un’s government has little choice but to continue its fledgling efforts at economic reforms that reflect market realities on the ground or risk losing its grip on power, experts say.

A Reuters reporter, allowed to roam the store with a government minder for a look at the North Korean consumer in action, noted almost all the price tags were in dollars as well as won. A Sharp TV was priced at 11.26 million won or $1,340; a water pump at 2.52 million won ($300). Beef was 76,000 won ($8.60) a kilogramme. North Korean-made LED light bulbs sold for 42,000 won ($5). The exchange rate used in these prices – 8,400 won to the dollar – is 80 times higher than the official rate of 105 won to the dollar. At the official rate, the TV would cost over $100,000; the light bulb, $400.

Shoppers openly slapped down large stacks of U.S. dollars at the cashier’s counter. They received change in dollars, Chinese yuan or North Korean won – at the black market rate. The same was true elsewhere in the capital: taxi drivers offered change for fares at black market rates, as did other shops and street stalls that Reuters visited.

For the last twenty years, North Korea has been undergoing economic changes, the fruits of which are now more visible than ever in the capital, Pyongyang, where large North Korean companies now produce a diverse range of domestically made goods to cater to this growing market of consumers. People are spending money they once hid in their homes on mobile phones, electric bicycles and baby carriers.

The latest sign that the workers’ paradise is going capitalist: cash cards from commercial banks.

GREW OUT OF FAMINE

Four months before Kim opened the Pothonggang Department Store, the United States imposed sanctions on North Korea, including its imports of luxury goods, for torpedoing a South Korean ship – a conclusion Pyongyang rejected. Since then, the U.N. has imposed more sanctions on North Korea for violating restrictions on its nuclear and missile programmes.

None of that has had much effect on the vast majority of North Koreans living in the countryside, where a rudimentary market has evolved considerably over the past two decades. Agricultural mismanagement, floods and the collapse of the Soviet Union led to famine in the mid-1990s. The state rationing system crumbled, forcing millions of North Koreans to make whatever they could to sell or barter informally for survival.

The regime penalised this new class of entrepreneurs in 2009 when it redenominated the won by lopping off two zeros and setting limits on the quantity of old won that could be exchanged for the new currency. That move ended up destroying much of the private wealth earned on the market.

Demand for hard currency surged after the bungled currency reform as more and more merchants in the underground markets required transactions to be conducted in foreign currency. It triggered two years of hyperinflation.

But the government of Kim Jong Un, who became North Korea’s leader after his father’s death in December 2011, has essentially accepted the ubiquity of the black market rate and a widespread illicit economy, North Korea experts say.

“Under Kim Jong Un, not a single policy has been implemented which would somehow damage the interests and efficiency of private businesses,” said Andrei Lankov, a North Korea expert at Kookmin University in Seoul.

“It’s a good time to be rich in North Korea”.

THE NEW CONSUMER

Many of the goods inside the Pothonggang Department Store, a grey building nestled between willow trees and a river of the same name, are still beyond the reach of many North Koreans.

An air conditioning unit sells for 3.78 million won ($450 dollars) – which if paid in won would require a bag of 756 five thousand won notes, the highest denomination note in won.

A growing middle class called “donju”, meaning “masters of money”, who made cash in the unofficial economy are starting to spend it on these new products, along with the long established elite of Humvee-owning individuals with powerful political connections.

Only recently an elite item, mobile phones are now common in the capital, with nationwide subscriber numbers topping three million, an employee with Koryolink, the cellular carrier controlled by Egypt’s Orascom Telecom told Reuters.

The number has tripled since 2012 and indicates one in eight of North Korea’s 24 million people now have a mobile phone.

Energy-saving products are a fast-growing sector of North Korea’s new consumer market and were one of the hottest items in the department store.

Domestically produced LED bulbs are ubiquitous in North Korea, where satellite images have shown a country almost completely black at night. The 9-watt bulb costs $5 and is a best-seller at the Pothonggang store, said a staff member. The energy-saving bulbs are used inside homes and on street lamps that now bask the formerly darkened streets of the Pyongyang night in a dull, faint glow.

Solar panels with USB-enabled inverters and batteries are available in the store alongside water pumps and small generators – exactly the kind of systems North Koreans now use to take power into their own hands.

CASH CARDS

Baby products are another booming consumer item. A large section of the department store is devoted to strollers and baby carriers produced in China and South Korea.

Many residents of Pyongyang can be seen riding Chinese-made battery powered bicycles, which only began to appear in the capital over the last year, locals said.

Some of these transactions are done with the Narae Card, a cash card run by North Korea’s Foreign Trade Bank – a designated entity under U.S. sanctions since 2013 for the part it reportedly played in nuclear weapons procurement.

Cash cards have been in the hands of the few for the last several years but have recently become a new growth industry. Narae cards are topped up with U.S. dollars and are mainly used for foreign currency purchases. They can also be used to top up mobile phone accounts.

Foreign investors can also set up banks in North Korea and are allowed to lend money and provide credit-based financing schemes to North Korean companies, according to a bilingual book of North Korean law available to foreign investors.

Ryugyong Commercial Bank, for instance, offers shopping discounts as well as gold or silver card options for its customers. As with the Narae card, customers are encouraged to top up their accounts with dollars.

LOSING FACE?

After a $4 dollar taxi ride, the driver reluctantly handed the change from a twenty dollar note to a Reuters correspondent who insisted on getting change in North Korean won.

Foreigners are not officially permitted to use the currency, so the openness of the transaction – in the presence of a government guide – was another sign of the black market turning white in north Korea. The driver’s reluctance to hand over won was because of its inconvenience, not because he was afraid of being caught.

“It’s a lot of notes in our money,” he grumbled, counting out 130,000 won from a large crumpled bundle of discoloured 5000 won notes.

That note, still the highest denomination, once carried a smiling portrait of founding president Kim Il Sung but is being gradually phased out by a version with no portrait – an indication a larger denomination note may one day replace it to accommodate the widespread use of black market pricing.

That would also get around the embarrassing problem that the faces of American and Chinese leaders, not the Kims, adorn much of the cash used in the country now. For a regime that has cultivated a personality cult around the Kim dynasty, it is quite literally losing face on its own money.

MATTER OF TIME

Where there’s commercial enterprise, advertising is sure to follow. Sprinkled in among the roadside signs and billboards, once the exclusive domain for propaganda, are small notices that tout car repair services, electronics and trading companies

One prominent company, Naegohyang [Naekohyang/내고향] (my homeland) advertises at football games and has a women’s football team by the same name. It produces everything from clothes and sanitary pads to 7.27 brand cigarettes, a favourite of Kim Jong Un’s who can be seen smoking them on state TV. They also make ‘Achim’ cigarettes for export to Iran with printed health warnings written in Farsi.

At a speech following a military parade marking the 70th anniversary of the ruling Workers Party, Kim Jong Un promised to introduce “people-first” politics. It remains unclear, however, how committed he and his Workers Party – not to mention the powerful military – are to market-based reforms.

But it’s only a matter of time before the Kim regime formally adopts a market-based economy – as China did 35 years ago under Deng Xiaoping, said Kookmin University’s Lankov, who lived in Pyonyang in the 1980s.

“That’ll be a great day, but it’ll be relatively meaningless in one regard,” he said. “It’ll be a formal recognition of something which has happened anyway”.

Read the full story here:
North Korea’s black market becoming the new normal
James Pearson
Reuters
2015-10-29

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Rodong Sinmun calls for strengthening the cabinet in economic matters

Friday, September 5th, 2014

UPDATE 1 (2014-9-11): IFES reports: North Korea emphasizes innovation using “economic management in our style” approach:

North Korea has announced that the nation’s economic management problem will be solved through their “own style,” once again stressing the superiority of the Socialist self-reliant economic model and reiterating the need to construct a strong and prosperous nation.

A September 3, 2014 editorial in the Rodong Sinmun argues the importance of economic management and leadership, saying that it must be improved to meet the demands of the North Korean economy, which has reached a new turning point in its development.

“Economic Management System in Our Style” is North Korea’s new approach to economic principles originally stemming from Kim Il Sung and Kim Jong Il. The editorial emphasizes that it is a project that will bring real results and continuous development.

Furthermore, the editorial argues that economic management and leadership must be carried out according to objective economic law and scientific reason in order to ensure the greatest possible economic practicality.

The article also emphasizes the role of scientific technology, saying that “Research and development must be actively promoted in all areas and all aspects of the people’s economy. New scientific technology must be integrated into production in order to renovate the economy and meet the demands of the new generation.”

The editorial also calls for conservation of national human and material resources as much as possible, as fundamental problems in building a strong economic nation and improving the life of the people, including the lack of adequate power and food, have yet to be solved.

The roles of economic advising agencies and their workers were emphasized as being especially important. The editorial stresses that these economic advisers must become aware of the deep responsibility they hold, and must work to achieve real results in improving the country’s economic management.

Finally, the role of the Cabinet was also emphasized as the commander of the economy. Specifically, the editorial calls for the strengthening of the Cabinet-centered system, in which the Cabinet should oversee all economic institutions and sectors and create policies accordingly. In addition, the Cabinet’s role to guide companies with scientific business and corporate strategies is emphasized so that they may actively engage in creative business activities.

North Korea has been rolling out economic improvement measures since early 2012, starting with the agriculture sector. Since then, an “independent profit system” has also been introduced in various factories and businesses where managers are allowed more autonomy in managing operations, but are ultimately responsible for the business’s productivity.

Beginning this year, the “business know-how” concept was applied to various farms and factories, and increased profits reportedly have begun to see their way back into the hands of the workers. The workers, whose job performance has increased due to the rise in profits, are seen as the driving force of North Korea’s economic development.

ORIGINAL POST (2014-9-5): Thanks to Choson Exchange for spotting this one. According to Rodong Sinmun (2014-9-4):

Giving Full Play to Advantages and Might of Self-surpporting Economy

It is necessary to settle the issue of economic management by Korean style in order to fully demonstrate the advantages and might of the Juche-oriented socialist self-supporting economy and win the final victory in the drive for building a thriving nation.

The establishment of Korean-style economic management method is, in essence, the work to apply, carry forward and develop the principle and methods of economic management indicated by President Kim Il Sung and leader Kim Jong Il as required by the present times.

It is necessary to hold fast to the socialist principle in improving the economic management.

It is essential to ensure the maximum economic profitability by guiding and managing economy according to the objective laws of economy and scientific reason.

In order to improve the economic management it is important to raise the responsibility and role of the economy guidance institutions and officials.

It is possible to successfully achieve economic development only by working out a scientific economy development strategy, enlisting the natural resources and all potentials of the country to the maximum, ensuring a steady growth of production and keeping the overall balance of economy.

The Cabinet is the economy command of the country.

It is necessary to strengthen the Cabinet responsibility system, system centering on the Cabinet, concentrate all the economic fields and overall economic work on the Cabinet and take measures under the supervision of the Cabinet.

The editorial calls for improving the economic management as required by the developing reality and intended by the party and thus giving fuller play to the advantages of Korean-style socialism and bring about a fresh turn in the building of a thriving nation.

Here is a PDF of the web page should the URL go bad.

It is worth noting briefly that this is what we have seen recently in recent consolidation of the JVIC, SEDC, and Ministry of Foreign Trade into the Ministry of External Economic Affairs.

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Economic Management Improvement Measures – changes after one year

Friday, April 11th, 2014

Institute for Far Eastern Studies (IFES)
2014-4-11

The Choson Sinbo, a Japan-based pro-North Korean newspaper, reported on April 2, 2014 that since March of last year all production facilities across North Korea have begun to take measures that will allow them to operate more autonomously. The article is currently garnering attention due to its explanation of the changes and improvements to economic management and by introducing factories where these measures have been successful.

The news also reported that North Korean factories have to diverge from the national economic plan and produce and sell products at their own discretion. Furthermore, workers’ compensation and benefits packages are being adjusted according to each individual factory’s economic situation.

One year after the implementation of the economic management improvement measures, the concept of “business know-how” has begun to settle in each factory. Factories that have been achieving successful results all share similar developments in worker enthusiasm, sense of responsibility, originality and creativity. Promoting the growth of these qualities in factory workers became the key to the successful economic management and growth during this period.

Specifically, the newspaper reported that the North Korean factory workers are seeing returns on their increased profits, and that their enthusiasm is the driving force of the nation’s economic growth.

In the article, Pyongyang Electric Cable Factory 326 was introduced as the first factory to be labeled as a “leading unit” and is considered as an ideal factory workplace for many job seekers in Pyongyang.

At this factory, monthly wages have steadily risen in increments that allow workers to meet the rising costs of living and maintain healthy lives. Workers at Pyongyang Electric Cable Factory 326 are now earning dozens of times more than the national average every month, and the highest record for wages soaring to over 100 times the average was observed this past year.

Alongside slogans and posters that inspire the workers’ will to work, competition charts are also posted at various locations around the factory. This has created a sort of “Socialist production competition.” Factories that submit detailed reports of their business performance receive gifts, and the unit that receives first place is rewarded with a special congratulatory dinner.

Another reason why job seekers are choosing this factory as their ideal workplace is because of housing security. Factory 326 solves its workers’ housing problems by constructing residence complex for the employees and workers become eligible to receive housing after working three to four years.

According to the article, the recent measures taken to improve economic management have been effective in creating a sense of attachment between worker and factory and increasing workers’ desire to succeed. This, combined with the introduction of new scientific technology has allowed factories across North Korea to attain a 10 percent increase in production over the last year. While overall production has in fact increased, it can be concluded that the boost to worker morale is the biggest and most important part of the changes seen in the economy since the implementation of the management improvement measures.

On March 31 of last year, the Central Committee of the Workers’ Party of Korea held a plenary meeting where the “Byungjin line” or parallel policy that supports both economic and nuclear development, was adopted, and where Pak Pong Ju was elected to the Politburo — and later Premier (formerly First Deputy Director of the Central Committee of the Workers’ Party) — in an unprecedented move. From this point forward, North Korea began to officially advance its plans for economic management measures.

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Orascom seeks repatriation of profits – or new opportunities?

Friday, December 6th, 2013

UPDATE 1 (2013-12-8): According to an OTMT press release:

Orascom Telecom Media and Technology Holding Denies Reports about Freezing Investment in North Korea

Cairo, December 8th, 2013, Orascom Telecom Media and Technology Holding S.A.E. (“OTMT”) announced today that recent reports in some media sources claiming that OTMT is freezing its investment in North Korea are entirely inaccurate. Where OTMT currently has no plans for new investments in North Korea, the company is open for new opportunities in this market, in which it has been investing for six years. The company has not announced any intentions to freeze investments in the North Korean market.

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About Orascom Telecom Media and Technology

OTMT is a holding company that has investments in companies with operations mainly in Egypt, North Korea, Pakistan, Lebanon and other North African and Middle-Eastern countries. The activities of OTMT are mainly divided into its GSM, media and technology and cable businesses. The GSM activities include mobile telecommunications operations in Egypt, North Korea and Lebanon. The media and technology division consists of OT Ventures/Intouch Communications Service and the OT Ventures Internet portals and other ventures in Egypt, including LINK Development, ARPU+ and LINKonLINE. The cable business focuses on the management of cable networks.

OTMT is traded on the Egyptian Exchange under the symbol (OTMT.CA, OTMT EY).

And according to New York Telecom Exchange:

***Orascom Telecom has refuted recent media reports that it is freezing investment in its North Korean mobile network subsidiary.The company said that the reports “are entirely inaccurate.”In a statement it said that where OTMT currently has no plans for new investments in North Korea, the company is open for new opportunities in this market, in which it has been investing for six years.The company added that it “has not announced any intentions to freeze investments in the North Korean market.”However, it is worth noting that many companies do things without making announcements about them and the statement did not explicitly confirm that it would be spending any more money on its North Korean network, only that it was open to further opportunities.

ORIGINAL POST (2013-12-6): According to the Chosun Ilbo:

Egypt’s Orascom Telecom, the mobile service provider in North Korea, has invested US$200 million into the project so far but has yet to make a dime, according to website Middle East Online.

Orascom chief Naguib Onsi Sawiris was quoted by the U.K.-based website as saying he would make no more investment in North Korea until the company sees some returns.

Orascom started offering 3G mobile services in North Korea in a joint venture with North Korea’s postal service in 2008. The joint venture, Koryo Link, is 75-percent owned by Orascom and 25 percent by the North. It has managed to attract 2 million subscribers.

The Egyptian company invested another $200 million to build the giant Ryugyong Hotel in Pyongyang and set up a joint venture bank.

But North Korea apparently barred Orascom from sending profits from the mobile phone service back to Egypt. “Koryo Link is making profits, but North Korean authorities seem to have blocked remittance of the money,” a source in Beijing said.

The only firm, of which I am aware,  that has been able to repatriate significant sums of hard currency is Pyeonghwa Motors. Most traders take out North Korean goods/products that they can then sell for currency.

Read the full story here:
Egyptian Telecom Halts Investment in N.Korea
Chosun Ilbo
2013-12-6

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Recent developments in Rason

Wednesday, November 20th, 2013

A new article in Forbes updates us on some of the changes in Rason:

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

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

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

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

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

North Korea’s telecommunications challenges are a headache for business, too. Foreigners are able to get 3G on their phones, but it is expensive. International calls are possible but equally pricey.

“When telecommunications become a little more open that will indicate the seriousness of purpose,” says Andray Abrahamian, who directs Choson Exchange, a Singaporean nonprofit that focuses on business and legal training for young North Koreans in the DPRK.

Abrahamian has been watching North Korea for a decade and visited Rason several times. He says things are finally moving, a result of legal changes made in 2010 that helped make Rason more autonomous. Further legal changes two years ago were intended to harmonize Rason’s economic laws with those of China, he says.

“The degree to which [Pyongyang] will allow autonomy to the regional decision makers or local planners has yet to be seen. That’s a key issue for Rason–how autonomous are these places really?” asks Abrahamian, 36.

“Chinese small and medium-size enterprises, from Jilin Province but also Heilongjiang Province, are continuing to come in–Rason is experiencing growth,” says Abrahamian.

Not all the factories are new. The Rajin Garment Factory was built in 1958, long before talk of special economic zones. In the early days it produced school uniforms for North Korean students. After 1991 it took orders from China and today employs 180 staff.

The factory manager stands on the front steps. It’s early evening, and he’s watching a staff volleyball game in the car park. Has business improved since Rason was made a special economic zone?

He shrugs and says: “It’s hard to say. It’s different. For every school uniform we used to get paid 800 won and a 1,200-won government subsidy. Now there is no government subsidy.”

The workers, nearly all women, are given housing and paid 600? to 700 won a month, plus overtime, he says. Inside the factory, on the first floor, close to 100 women are clocking overtime. Wearing blue uniforms and matching head scarves, they are sewing puffer jackets, hurrying to complete a big order. The final step of the process is to sew in the label: “Made in China.”

The tag is written in English, and the woman packing the jackets doesn’t understand the visitors’ raised eyebrows. Apparently this is a common practice.

It’s noisy on the factory floor. The popular all-girl band Moranbong blasts out of speakers, drowning out the whir of sewing machines. It’s impossible to hear the drone of the generator, switched on after yet another power failure, a regular feature of life in the DPRK.

There is a deal in place to bring power from Jilin Province, but the Chinese have been holding it up using the pretext of an environmental impact study.

More Chinese power can’t hurt, says researcher Melvin, “but there are many more substantive problems the North Korean must overcome before serious large-scale investment can move into the country. The DPRK cannot currently credibly commit to any policy–no policy stability, rule of law–and has a poor record of honoring its agreements and impartially enforcing contracts. No independent company will risk serious capital in this environment.”

Another matter is fuel. Joseph Naemi is director of HBOil, an oil trading and refining company based in Ulaanbaatar, Mongolia. HBOil grabbed a few headlines in June when it was reported the firm had acquired a 20% stake in Sungri oil refinery in Rason. That was premature, says Naemi: HBOil has 20% of a state-dominated joint venture called Korean Oil Exploration Corp. International, and a formal commitment with Sungri has yet to be made. Another option is to invest in a refinery on the west coast of the DPRK.

“The easy option is Sungri oil refinery because it’s based on Russian technology and because of its location in terms of the dynamic state of affairs in Rason Special Economic Zone. We are conducting engineering assessment of the refinery to determine the various phases of upgrading and expanding–it’s a work in progress,” says Naemi.

Describing Rason officials as well educated and smart, he says they understand issues of foreign investment protection, taxation and the need to not only be fiscally transparent but also to offer attractive terms to investors.

“I know a number of Mongolian companies, all privately owned, that are at various stages of either investing in North Korea or finalizing their joint ventures so that they can invest. There is a robust relationship between Mongolia and North Korea,” says Naemi.

For anyone doing business, there will be surprises. Standing on the terrace of the new brewery, Novotny looks out at the recently planted lawn. The seeds have been planted in rows, five centimeters apart, all the way down to the sea. Come summer and the warmer weather, the grass should have taken. It stands to be a great spot for a bar.

“Yeah, if we’re still open,” says Novotny and laughs. He drops his voice and out of earshot of his minder adds: “Look at the grass, see how it grows in such straight lines. Things are different here.”

Read the full story here:
Things are Brewing in North Korea’s Rason Zone
Forbes
Kate Whitehead
2013-11-20

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Pyongsu to open new pharmacy in Phyongsong

Sunday, September 8th, 2013

According to Yonhap:

A joint venture between North Korea and Switzerland will open its first chain drugstore in a provincial city in the communist country by the end of this year, according to the company’s website Sunday.

The new store will be situated in Pyongsong, South Pyongan Province, where many of the North’s well-off people who can afford medicine live, the Pyongsu Pharma J-V Co. said.

Launched in 2004 as a joint venture between Parazelsus, a Swiss investment and management company with a focus on healthcare, and Pyongyang Pharmaceutical Factory under the North’s health ministry, Pyongsu Pharma has since opened nine chain stores in Pyongyang to provide North Koreans with essential medicine, such as aspirin and digestive aids.

Pyongsong, located just north of Pyongyang, is the capital of North Pyongan Province. It was developed into a science-research city, housing many research institutes in the 1960s, but now is a hub of logistics for distributing everyday goods all over the country.

Last month, the North Korean authority opened the city to foreign tourists, according to a Chinese tourism agency specializing in tours to the North.

“Since medicine is as precious as rice in North Korea, Pyongsong will be crowded with people coming to buy medicine from other parts of the country if a drug store opens in the city, which has a relatively well-developed traffic network with other cities,” a source well informed on North Korea said.

Read the full story here:
N.K.-Swiss joint venture to open drugstore in N.K. provincial city
Yonhap
2013-9-8

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Unification Church to sell Pyeonghwa (Pyonghwa) Motors?

Monday, December 3rd, 2012

Pictured Above (Google Earth): Pyeonghwa Motors Factory in Nampho. Recent additions highlighted in Yellow.

UPDATE 1 (2013-1-22): In a later interview, the head of Pyeonghwa Motors revealed more information on his compan’y relinquishment of Pyeonghwa Motors, and described their future ambitions.

ORIGINAL POST (2012-12-3): According to Yonhap (via Korea Times):

The source said, “As far as I know, Pyeonghwa Motors is seeking to sell its factory in Nampo for about US$20 million in order to end its auto business.”

“The (South Korean) president of the auto firm appears to be eyeing the distribution sector” in North Korea, an official at the foundation said, adding the president may move to a new industry after liquidating the auto business. “But nothing has been determined so far,” the official said.

Pyeonghwa Motors president Park Sang-Kwon is widely expected to hold discussions with the North over the business shift during a North Korean visit scheduled for mid-December, to mark the first anniversary of the death of late North Korean leader Kim Jong-il, who died on Dec. 17.

According to the Wall Street Journal:

The North Korean government is a 30% partner in the car manufacturer.

A unit from the church’s business arm spent about $55 million to build the Pyeonghwa factory in Nampo, a port city on North Korea’s west coast about an hour or so outside of the capital Pyongyang. After the factory was completed in 2002, workers there completed partially built cars, in a form called knockdown kits, that were imported from manufacturers in Italy and China.

But the company appears to have rarely been profitable. In 2009, the firm earned about $700,000 from the sale of 650 cars. About $500,000 of that was remitted to its parent operation in South Korea. The South Korean government noted then that it was the first time a South Korea-based company repatriated profits from North Korea.

The Pyeonghwa Motors web page does not contain any information on this development.  You can view the web page here (english). The last published press release was on 2011-1-11:

The web page does have production and sales data (if you choose to believe it):

No revenue or profit numbers are given on the web page, but it does mention that the factory’s capacity is 10,000 units per year. If these numbers are correct, in 2011 (the most productive year in terms of output) the factory was only running at approximately 19% capacity.

The Pyeonghwa Motors web page also offers a grand vision of the factory’s future (100,000 unit capacity):

However, as Google Earth satellite imagery shows, this plan has yet to come to fruition.

Previous posts on Pyeonghwa Motors here.

Read the full stories here:
Unification Church to wind up auto venture in NK
Yonhap (via Korea Times)
2012-11-28

End of the Road for North Korean Auto Maker?
Wall Street Journal Korea Real Time
Evan Ramstad
2012-11-27

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