Archive for the ‘Economic reform’ Category

DPRK-Oracsom mobile phone deal update

Wednesday, March 12th, 2008

From Reuters

[Naguib Sawiris, CEO] said he was “astonished” how quickly the North Korean authorities wanted the service to start and he had high hopes for business in the country.

“We firmly believe that in the next three or four years we will be having a couple of million subscribers there and we will be seeing ARPUs in the range of $12 or $15 (a month),” he added.

Sawiris said that of the $400 million the company plans to invest in North Korea over the next three years, about $200 million would probably come in the first year, with $100 million in each of the two subsequent years.

Read the full story here:
Egypt’s OT seeks 100,000 N Korean subscribers from May
Reuters
3/12/2008

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KFA wraps up business delegation to DPRK…

Monday, March 10th, 2008

In the words of Alejandro himself:

[The] Korean Friendship Association concluded its first busines [sic] delegation, headed by Mr. Alejandro Cao de Benos, Special Delegate and KFA President, in collaboration with the DPRK Committee for Cultural Relations, Ministry of Trade and the DPRK Chamber of Commerce. The group included companies from Australia, France, Spain and Lebanon in different sectors like ship building, foodstuff production, medicine, IT and infrastructure, etc. The visit was a big success and 75% of the investors signed letter of intentions and contracts. All of the participants agreed that DPR Korea has a huge potential and new market with many interesting opportunities with the lowest taxes and wages but with the most skilled, motivated workforce. The companies fullfiled [sic] all their plans and resolved the questions during the visit and they had meetings with their Korean counterparts as well as with the officials of Trade, Chamber of Commerce, Banking authorities and logistics.

They visited a Foodstuff factory,  Heavy Machinery complex, Ostrich farm as well as the ‘Kaesong Industrial Zone’ in the border with South Korea, were they had a briefing by the Director representative of Hyundai-ASAN.

After that, the investors visited a South Korean cable-making factory and a garment manufacturing plant specialized in high quality sport brands.

From KFA we congratulate the companies that concluded agreements and established Joint Ventures in the DPRK and wish them success in their projects.

From a follow up post on the KFA forum, one of the attendees appears to be Mr. Kevin Liu, head of Asian Division of London-based Exclusive Analysis.

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South Korea launches reforestation campaign in North

Thursday, March 6th, 2008

Anyone who has spent time visiting North Korea on Google Earth will have noticed the acute shortage of trees.  I am not alone in this observation.  Dr. Lankov recently reported that South Korean tourists to Kaesong also sense this.

Donating trees to the North might sound like a particularly harmless form of aid–all the symbolism of inter-Korean cooperation without the messy politics of monitoring food aid or investment.  But the reality is far more pragmatic:

[H]elping North Korea to plant more trees is one of President Lee’s campaign pledges.

He said the South will send seedlings to the North but no details were given as to whether or when the two Koreas will meet for the forestry project.

The spokesman said when the Kyoto Protocol takes effect, the South can buy the right to emit CO2 from North Korea.(Korea Times)

The South Korean government is not alone in hoping to make money off increasing North Korea’s stock of trees.   Singaporean entrepreneur Richard Savage started a tree farm in the DPRK back in 2002:

Richard Savage kneels in the rich brown earth of a field on the outskirts of Pyongyang and reverentially spreads out the broad, green leaf of a young paulownia tree. The saplings have been in the ground for only a month but already they are a meter high; the first harvest could take place in just five years. Eyes shaded by his black cowboy hat, the Singaporean native gazes down the rows of juvenile trees, each worth thousands of dollars at maturity, with a satisfied grin. The experimental lumber crop has survived the harsh North Korean winter and is flourishing in the loamy soil. “The paulownia loves this,” he says. Glancing at another leafy plant, a new hybrid, he confides, “We’re going to let the Dear Leader name it.” (Time)

UPDATE 2002 (Via Werner Koidl):

The IHT wrote on Oct. 27th, 2006:
“Richard Savage, executive director of Maxgro, a company based in Singapore, is probably one of the most ambitious foreigners in North Korea. He is developing a hardwood plantation on 1,500 hectares, or 3,700 acres, manufactures Snow Pine cigarettes for the local market and is building an eight-story financial center in Pyongyang in a joint venture with the government and other investors.”

Even the North Korean government, though, has noticed that the forests are not as dense as they used to be.  Bradley Martin reported in Bloomberg that Kim Jong il has been pushing a reforestation program for some time:

North Korea’s deforestation program dates back to a 1961 speech by Kim Il Sung. In a mostly mountainous country, he proclaimed, “it is necessary to obtain more land through the remaking of nature.” Not only tidelands but “hills throughout the country and plateaus” should be “brought under the plough,” he said.

“The hills and mountains still had trees, and I never heard of floods,” said Hiroko Saito, a Japanese woman who moved with her Korean husband to North Korea in 1961. Her husband joined one of Kim’s vast mountain work teams in the early 1970s, said Saito, now 66 and back in Japan.

Following Kim’s death in 1994 — just before a flood-linked famine gripped the nation — his son and successor Kim Jong Il continued the sacrifice of forest cover until 2000, when he began encouraging reforestation. But the shift hasn’t reversed the damage, and some analysts warn that another famine, close to the scale of the 1990s disaster that may have killed millions of people, might occur as soon as next year.

The government’s agricultural policies launched a cycle of events that lead to greater and greater numbers of trees being culled.  Clearing the forests contributed to seasonal flooding.  The floods exacerbated the food shortage, and pushed people to adopt coping mechanisms to meet their minimum caloric intake for survival.  These coping mechanisms take a toll on what remains of the forests–which exacerbates the flooding.  Repeat annually. This  cycle of destruction has seemingly frustrated Mr. Kim’s plans to bring back the forests:

“For the past few years, I have been telling you to work hard afforestation and have encouraged you at every opportunity.”

“However, an forestation has not met the criteria of authorities and is not going according to plan.”

What Kim Jong Il is trying to say is that, “The reason afforestation is not working is because of the people’s reckless slash-and-burn cultivation, as well as the inefficiency of officers unable to block it.”

After the food crisis in ’95, people uprooted vines and trees to suffice their underfed diets, as well as cultivating illegal farms for food. Further, to save themselves from freezing to death, people used trees as firewood.(Daily NK)

Spontaneous coping mechanisms aside, efforts at increasing forrest cover might prove more difficult than the government expects.  Even if it resolves the food shortage (which does not seem likely in the near term), it has seemingly lost control of its technocrats who have no problem selling DPRK lumber overseas:

…Oh Moon-hyuk, branch manager of the Ruengra 888 trading company in Yunsa, North Hamkyung Province, was executed after being implicated in the smuggling of timber. The trading company was responsible for the export of timber, and operates under the control of the Party’s accounting bureau. The inside contact stated that because of this incident, North Korean authorities carried out further inspections, leading in October of last year to the dismissal of one official receiving vice-minister pay, and the broadening of the inspections nationwide. (Institute for Far Eastern Studies)

The full articles can be found here:
S. Korea to Help N. Korea Plant More Trees
Korea Times
Kim Yon-se
3/5/2008

Kims’ Clear-Cutting of Korean Forests Risks Triggering Famine
Bloomberg
Bradley Martin
Hideko Takayama
11/21/2007

Cause of Barren Mountains: Imperialism-Natural Disaster-Officers
Daily NK
Han Young Jin
3/16/2007

Institute for Far Eastern Studies (IFES)
NK Bfrief No. 08-2-5-2
2/5/2008

Light from the North?
Time
Donald MacIntyre
8/11/2002

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Russian auto plant KamAZ in DPRK

Thursday, March 6th, 2008

A couple of days ago, we had an interesting exchange in the comments that I want to make sure readers have an opportiunity to see:
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Werner Koidl Says: 
 
In that Asia Times report Dr. Petrov wrote:
“… Last year the Russian auto plant KamAZ opened its first assembly line in North Korea, specializing in the production of medium-size trucks named “Taebaeksan-96″. …”

I would be interested in more details about that KAMAZ truck assembly line in North Korea ! Where ?, joint venture ?, size ?
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Leonid Petrov Says: 
 
Concerning the “Taebaeksan 96″ truck assembling plant, the KamAZ set it up last year (2007 or Juche 96) in the town of Pyeongseong. The terms of this deal with NK were really “friendly” and last year KamAZ was having no or very little profit. The production volume last year was very limited (45 or 48 trucks). However, it’s just the beginning of such cooperation.

There is one technician-representative from KamAZ who manages the assembling process. He stays in Pot’onggang HTL and commutes to Pyeongseong. Many North Korean drivers and technicians seem to be technically ignorant (i.e. not knowing how to change the engine oil, etc.), so they need a new technological culture to be introduced. Russians train them well and the North Koreans are grateful.
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Gag Halfrunt Says:

Now that explains the brochure for the Taebaeksan 96 I’d noticed on the Korean Friendship Association’s exports page. I was wondering how anyone could be making money from sticking badges on KamAZes and trying to sell them on. In any case, the export potential for the Taebaeksan 96 must be close to zero, since anyone outside the DPRK who wants a KamAZ can buy one assembled by KamAZ itself.

Trying to drum up interest in the DPRK as an investment destination, the KFA say, “All business made directly with the government, state-owned companies. No middle agents.” This is amusing, because, on the Pyeonghwa car brochure on the KFA website, they’ve sneakily deleted Pyeonghwa’s own contact details and replaced them with the KFA’s email and web addresses. I think this qualifies them a “middle agent” standing between Pyeonghwa and any potential export customers…
———————–

Werner Koidl Says:
 
The link “brochure for the Taebaeksan 96″ given by Gag Halfrunt seems to indicate that the KamAZ Taebaeksan-96 is assembled in a joint venture with Ryongwang [Ryongbong] Trading Company of North Korea. Ryongwang Trading is also the joint venture partner of Pyeonghwa Motors (Unification Church) to assemble the “Whiparam” in Nampo. And Ryongwang Trading company is also business partner of “Kohas” company from Switzerland. And because of its connections to Ryongwang this Swiss company got in troubles with the US administration.

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Germans break ground in Kaesong

Thursday, March 6th, 2008

According to Business Week German auto parts manufacturer, Prettl, became the first non-Korean firm to start building a plant inside a joint inter-Korean factory complex in North Korea–breaking ground Wednesday.  Kim Min-kyung with the Kaesong Industrial District Management Committee claims the factory will be open in December and employ 550 North Koreans.

Other facts:

Two Chinese companies also signed contracts last year to run factories in the area but have not started construction, Kim said.

A total of 69 South Korean companies are currently operating in the zone, employing some 23,220 North Korean laborers, according to the management committee.

The full article can be found here:
German firm breaks ground in North Korea
Business Week
3/5/2008

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Stratgeic alliances in North East Asia: Railways, ports, and energy

Tuesday, March 4th, 2008

Writing in today’s Asia Times, Dr. Leonid Petrov analyses the complexity of Russia, Rok, DPRK, and Chinese relations:

Russia and North Korea:

Territorial claims, in one form or another, involve almost all countries adjacent in this region with the exception of Russia and Korea. The Joint Russian Federation-DPRK Commission for the Demarcation of State Borders has recently completed its work by documenting and marking the 17-kilometer frontier. This strip of uninhabited and swampy land in the mouth of the Tumannaya (Tuman-gang) River plays an exceptionally important geopolitical role. It not only provides the two countries with land access to each other, but also prevents Chinese access to the East Sea (Sea of Japan).

China and North Korea: 

Here, some 50km north of the small port that forms the core of North’s Rajin-Seonbong Special Economic Zone, the interests of Russia and China are now at stake. Russia is rapidly repairing the railroad track, and China (in a similarly speedy manner) is constructing a new automobile highway, both leading from their respective borders to the port of Rajin. Russia, investing at least 1.75 billion rubles (US$72 million) into this project, seeks to strongly connect Rajin (and the rest of northern Korea) to its Trans-Siberian Railroad. China, in turn, hopes to divert the growing cargo traffic to its own territory, offering the efficient network of railroads for delivery of South Korean and Japanese goods to Central Asian and European markets. What position will the government of North Korea take in this clash of ambitions?

Russia and South Korea (energy and trade):

In 2007, the volume of the export of “black gold” from Russia to South Korea reached 38.13 million barrels (2.7 times more than in the previous year). The relative proximity of the Russian oil and gas fields is an attractive factor for Korean companies who actively search for alternatives to Middle East oil suppliers. This year South Korea will for the first time start importing natural gas from Russia. The expected volume of delivery during 2008 is 1.5 million tons (or 5.1% of South Korea’s annual demand).

and

Trade relations between Russia and Korea are steadily growing. According to customs statistics, last year Russia recorded the sharpest increase of South Korean imports (56.2% more than in 2006). Due to the inflow of “petro-dollars” the new class of nouveaux riches in Russia began actively buying Korean automobiles, cell phones, television sets and LCD monitors. South Korea exported to Russia goods worth US$8.1 billion (including $3.296 billion of automobiles, $859 million of mobile phone equipment, motor vehicles and spare parts worth $659 million). As for trade with North Korea, in 2006 Russia occupied third place after China and South Korea and absorbed 9% of the total $3.18 billion spent by the North on imports.

More on Russia/South Korea energy talk here. 

The whole article deserves reading here:
Russia lays new tracks in Korean ties
Asia Times
Leonid Petrov
3/5/2008

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DPRK demanding $100 USD residence fee at Kaesong Industrial Complex

Monday, March 3rd, 2008

Institute for Far Eastern Studies
NK Brief No. 08-3-7-1
3/7/2008
 
North Korea’s latest demand at the Kaesong Industrial Complex (KIC) is a 100 USD per person registration fee for South Korean workers residing in the complex’s dormitories. The North demanded the fee early in 2007 to cover registration and issuance of registration certificates regarding workers visiting or residing in the complex, and negotiations have been underway the entire year.

An unnamed source close to the South Korean government stated, “At the end of January, the North unilaterally decided on the KIC visiting and residing fees, and when they were not complied with [the North] notified [the South] that they would ban entrance” to the complex, however, “despite this, currently entrance into the complex is freely obtainable.”

The North set a 35 USD fee for registering a short-term stay of up to 90 days, and a 100 USD fee for registering a one-year residency, according to the source. A Unification Ministry official acknowledged, “The fee demanded by the North is not exorbitant, but from the perspective of the businesses in the complex, negotiations on reasonable measures were in progress.”

North Korea is making its demands based on the ‘Kaesong Industrial Zone Entrance, Dwelling and Residence Regulation’ enacted in December 2003. According to this regulation, fees must be paid for issuance and reissuance of registration papers when applying for short term stays up to 90 days, long term visits over 90 days, and residency of one year or more. Currently, there are over 800 South Korean employees who would need to pay fees for visiting or residing at KIC.

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More on the DPRK anti-corruption campaign…

Sunday, February 24th, 2008

Details are starting to emerge on North Korea’s recent anti-corruption drive.   

North Korean authorities have been investigating the chief of a North Korean committee in charge of inter-Korean economic cooperation for months after seizing $20 million from his house, a report said Friday.

Quoting an unidentified Chinese source informed on North Korean affairs, the Dong-A Ilbo newspaper said Pyongyang authorities are intensifying their investigation into Jung Woon-eop and 80 other officials of the committee over where the money came from.

It is possible that this is just a good old fashoned purge.

It is also possible that this campaign is the first stage in a policy shift.

The full article can be found here:
NK Official Suspected of Embezzling Funds From Seoul
Korea Times
Jung Sung-ki
02-22-2008

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Haeju receives South Korean broadcasts

Friday, February 22nd, 2008

How pervasive is the flow of outside information in North Korea?  Typically stories in the media answer this question as though geography is the determinate variable: Cities near the Chinese border are the most influenced by heterodox ideas (since cell phones, clear television signals, and smuggling have been commonplace for years), and cities in the south (along the DMZ) are the most isolated (aside from Kaesong).  North Korea’s internal travel restrictions prevent foreign ideas from spreading.  This view was recently repeated by Andrei Lankov.

“The Kaesong exception” is thought to be correlated to the growth of the the Kaesong Industrial Zone.  The theory goes that the thousands of North Koreans who are employed in Kaesong (who work in South Korean facilities for South Korean managers) pick up bits of outside information at the margin and share it with their friends and family back home.  It is not an unreasonable theory.   

A new story in the Daily NK, however, presents evidence which points to ideological contamination on a nationwide scale (irrespective of geography).  The story claims that the city of Haeju is not only thoroughly exposed to South Korean radio and television – it is a production hub of a pirate video market:

“We can receive the TV broadcast of KBS (Korean Broadcasting System) and SBS (Seoul Broadcasting System) fine in Haeju. Sometimes, we can watch MBC (Moonhwa Broadcasting Corporation) as well. I watched Dae Jo Yong (a popular TV drama from KBS) on TV. However, I wanted to watch it again, so I bought a CD and watched it several more time.” He said, “We can get copies of South Korean TV programs from China. However, a great number of copies are also produced in Haeju.”

In a nod to communist efficiency, the subject interviewed in the Daily NK story even claims that in Haeju it is easier to pick up South Korean television signals than those from North Korea! 

With a “manufacturing” facility in Haeju, black market DVDs or VCDs can be copied and distributed throughout the south east even if security is tighter along the Chinese border.  Additionally, these DVDs/VCDs would be cheaper and more widely distributed because they are produced locally (as opposed to using Chinese labor/capital) and will require fewer middlemen to get them across the border and into the hands of consumers.  If this has been going on for some time, then it is safe to assume that most urban centers from Haeju to Pyongyang have regular access to South Korean media! 

Of course a decline in acceptance of the state ideology means the government must rely on external controls (rather than an individual’s self-control) to maintain the system.  The good news is that external controls can be avoided through technolgy, corruption, or both: 

“In the border areas with China and South Korea such as Hwanghae and Kangwon Province, the North Korean authorities try to prevent people from watching S. Korean TV by soldering and pre-tuning TV sets to Chonsun (North Korea) Central TV. Lately, the authorities also attempt to restrict the usage of remote control by covering the sensor with silver paper.

However, North Korean people circumvent the regulation. Instead of giving away their remote control to the authorities, they purchase an extra and watch the TV as they please after removing the silver paper. After all, the authorities’ efforts to control TV channels turn out to be futile for those who have remote control TV sets.

The full article can be found here:
North Korean People Copy South Korean TV Drama for Trade
Daily NK
Lee Sung Jin
2/22/2008

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“Special provisions are not necessary. Just do not regulate the markets”

Thursday, February 21st, 2008

market.jpgAt its height, North Korea’s socialist infrastructure was responsible for the vast majority of the people’s standard of living.  Ration coupons and large purchases (such as for a car or refrigerator) were all provided through one’s employer.  This is because society was vertically integrated, with state-owned companies and ministries providing a broad array of social services that are handled by a variety of agents in a capitalist society (food, housing, education, childcare, health care etc..). There was little room for markets, or even prices, in people’s lives.

Although this system only worked for North Koreans in large urban areas, and excluded those in smaller villages and the country side who were much more dependent on themselves, for the vast majority of North Koreans today that system (or social contract) is a distant memory.  Out of fiscal necessity it has been chiseled away over the years, and as a result the scope for individual entrepreneurship in both the public and private spheres is increasing.  I do not want to give the impression that capitalism is running wild, but when compared to the past, the control of the North Korean state over the lives of its people is diminished.

One practice which has been retained to some degree, however, is the distribution of gifts or special provisions on the birthdays of the two leaders, Kim il Sung and Kim Jong il.  The scale of one’s gift, however, allegedly depends on one’s rank in society.  A common farmer might get a new pair of socks.  A senior Worker’s Party official probably receives a good deal more.  One estimate puts the value of these special gifts at USD$20m

The origins of these gifts are mixed.  Some are donated by foreignersSome are imported by the leadershipOthers are made domestically by the people themselves.

According to a story in today’s Daily NK, creeping marketization – bringing with it an increase in price and quality discrimination,  has left many North Korean consumers less than impressed with this year’s gift offerings:

A North Korean source in Shinuiju said in a phone conversation on the 17th, “When looking at the goods provided this time around, the quality has gone up as a whole in contrast to the past. However, the citizens did not attach too much significance to the ‘Great General’s gift’ as in the past.”

The source relayed the public sentiment as “Goods more valuable than his gifts are all over the place in the jangmadang. A portion of the people has said, ‘Special provisions are not necessary. Just do not regulate the markets.'”

In Shinuiju, a bottle of luxury liquor, 2kg of tangerine, and two pheasants were provided to the party organization through the “special provision’ and a bottle of liquor and a modest amount of fruits such as apples and tangerines were given to regular organizations. The People’s Units received a bottle of liquor, a toothbrush, and a bar of soap and pre-school and elementary school students received five pieces of gum, two rice crackers, two packs of chips, and one pack of candy.

The source added, “Those receiving the ‘title of hero’ and the Secretaries in charge of the county parties were given boxes marked with the label ‘gift,’ but its contents are uncertain.”

Another source in Hoiryeong in a phone conversation on this day said, “A bottle of liquor, a bar of soap, and a bottle of toothpaste were provided through the February 16th holiday provision and the children received a pack of candy, two packs of chips, a pack of pea candy, two packs of rice crackers, and seven pieces of gum.”

He also expressed discontent, saying, “It is pitiful to have to wait in line in front of the stores through which provisions are handed out for a mere bottle of liquor and soap.”

In the Hyesan, Yangkang Province region, laborers working at state enterprises were given 3kg of Annam rice (wild rice) and a bottle of liquor and oil were given to average households.

North Korea, in time for Kim Jong Il’s birthday in 2007, provided around 10 food items and daily necessities, including liquor and beer, cider and rice tally, oil, chips, and gum, to civilians.

In 2007, 200g of chips, 200g of candy, 100g of rice snacks, and five pieces of gum were given to elementary school students. Due to the shortage in foreign currency, special provisions were not offered to average civilians.

A caveat to this story is that all of the data points are from the large cities on the Chinese border.  These cities have benefited the most from trade with China and in all likelihood are the most “ideologically contaminated” in the DPRK.  

Source:
Jangmadang Goods Are More Valuable Than the General’s Gifts
Daily NK
Choi Choel Hee
2/21/2008

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