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DPRK Law on Foreign Investment

Thursday, January 1st, 2009

From Naenara: 

Adopted by the resolution of the Standing Committee of the Supreme People’s Assembly (SPA) on Oct. 5, 1992, and revised and supplemented by the decree of the SPA Presidium on Aug. 19, 2008

_________________________________

Article 1. Mission and status

This Law contributes to encouraging investment by foreign investors in the DPRK and protecting legal rights and interests of foreign-invested businesses.

The Law is the basic law relevant to foreign investment.

Article 2. Definition of terms

1. A foreign investor is a corporate body or an individual of a foreign country that invests in the territory of the DPRK.

2. Foreign-invested businesses include foreign-invested enterprises and foreign enterprises.

3. A foreign-invested enterprise stands for an equity or contractual joint venture or a wholly foreign-owned enterprise that are set up in the territory of the DPRK.

4. A foreign enterprise indicates an institution, enterprise, individual or other economic organizations from foreign countries with a source of income in the territory of the DPRK.

5. A contractual joint venture is a form of business activity in which investors from the DPRK and a foreign country jointly invest, the management is assumed by the partner from the host country and, depending on the provisions of the contract, the portion of the investment made by the foreign investor is redeemed or the share of the profits to which the foreign investor is entitled is distributed to him.

6. An equity joint venture is a form of business activity in which investors from the DPRK and from a foreign country invest jointly, operate the business jointly, and profits are distributed to the investors in accordance with the shares of their investment.

7. A wholly foreign-owned enterprise is a business enterprise in which a foreign investor invests and manages on his own account.

Article 3. Location

A foreign investor shall be permitted to set up and operate an equity or contractual joint venture within the territory of the DPRK, and a wholly foreign-owned enterprise in the specified area.

Article 4. Protection of rights and interests, provision of their management conditions

The State shall guarantee the legal rights and interests of foreign investors and foreign-invested businesses, as well as the conditions of their management activities.

Article 5. Parties to investment

Institutions, enterprises, individuals and other economic bodies of foreign countries shall be permitted to invest within the territory of the DPRK.

Overseas Korean compatriots shall also be allowed to invest within the territory of the DPRK, subject to the relevant laws and regulations.

Article 6. Sectors and forms of investment

A foreign investor shall be allowed to invest in various sectors such as industry, agriculture, construction, transport, telecommunications, science and technology, tourism, commerce and financial services in various forms.

Article 7. Priority sectors

The State particularly encourages investment in sectors that introduce modern technologies including the high technology, sectors that produce internationally competitive goods, the sectors of resource development and infrastructure construction, and the sectors of scientific research and technical development.

Article 8. Preferential treatment

Those foreign-invested enterprises that invest and operate in priority sectors stipulated in the previous Article shall receive preferential treatment, including the reduction of and exemption from income and other taxes, favourable conditions for land use, and the preferential supply of bank loans.

Article 9. Preferential treatment in the Rason economic and trade zone

Those foreign-invested enterprises that are established in the Rason economic and trade zone shall receive preferential treatments as follows:

1. No customs duty shall be levied on export and import goods other than those items that are prescribed by the State.

2. For an enterprise in a production sector, no income tax shall be payable for 3 years from the first profitable year and income tax may be reduced by up to 50 per cent for the following 2 years. The rate of income tax shall be 14 per cent, which is lower than in other areas.

Article 10. Immigrations in the Rason economic and trade zone

The State shall ensure that the relevant institutions make convenient the immigration formalities and methods for foreign investors entering or leaving the country with the purpose of setting up or operating business enterprises in the Rason economic and trade zone.

Article 11. Prohibition and restrictions on investment

The projects where investment shall be prohibited or restricted are as follows:

1. Projects which endanger the national security or injure public morals of the nation

2. Projects geared to resource export

3. Projects that are inconsistent to the specific standards for environmental protection

4. Technically obsolete projects

5. Projects with low profit

Article 12. Investment property, property rights

A foreign investor may invest in the form of currency, property in kind, industrial property rights, technical know-how and other assets and property rights. The value of assets and property rights invested shall be determined through an agreement between the partners on the basis of the international market prices prevailing at the time of the valuation.

Article 13. Establishment of a branch office, representative office and agency

Foreign-invested enterprises shall be permitted to open branch offices, agencies or liaison offices and to establish subsidiaries in the DPRK or other countries. They shall also be permitted to conduct joint operations with companies in other countries.

Article 14. Legal capacity

Equity or contractual joint venture enterprises and wholly foreign-owned enterprises shall become corporate bodies of the DPRK. Foreign enterprises and their branches, agencies and liaison offices that are set up within the territory of the DPRK shall not become corporate bodies of the DPRK.

Article 15. Term of land lease

The State shall lease the land required for foreign investors and the establishment of foreign-invested enterprises for a maximum period of 50 years.

Land so leased may be transferred or inherited during the period of lease with an approval of the relevant organ.

Article 16. Employment and dismissal of labour

A foreign-invested business shall employ its labour force from the host country. Managerial personnel, technicians and skilled workers for special jobs that are prescribed in the contract may be employed from abroad in agreement with the central trade guidance organ.

Labour force of the DPRK shall be employed or dismissed according to a contract made with the relevant labour service agency.

Article 17. Taxation

Foreign investors and relevant foreign-invested businesses shall pay income tax, turnover tax, property tax and other taxes.

Article 18. Reinvestment

Foreign investors shall be permitted to reinvest the whole or part of their profit within the territory of the DPRK.

In such cases the whole or part of the income tax already paid on the reinvested portion may be refunded.

Article 19. Protection of invested property

Foreign-invested enterprises and assets invested by foreign investors shall not be subject to nationalization or seizure by the State.

Should unavoidable circumstances make it necessary to nationalize or seize such enterprises and assets, fair compensation shall be paid.

Article 20. Remittance

Legal profit and other incomes earned by a foreign investor in its business may be remitted abroad, subject to the laws and regulations of the DPRK relating to foreign exchange control.

Article 21. Confidentiality

The State shall protect by law the business secrets of foreign-invested enterprises and shall not disclose them without the consent of the foreign investor.

Article 22. Settlement of disputes

Any disagreement concerning foreign investment shall be settled through consultation.

In case of failure in consultation, it shall be settled by arbitration or legal procedures provided by the DPRK or may be brought to an arbitration agency in a third country for settlement.

Preferential Treatment for Investment in Priority Sectors
From Naenara:

Article 8 of the Law of the Democratic People’s Republic of Korea on Foreign Investment specifies that the foreign-invested enterprises that invest and operate in priority sectors shall receive preferential treatment, including the reduction of and exemption from income and other taxes, favourable conditions for land use, and preferential supply of bank loans.

In accordance with the law, the DPRK government grants such preferential treatment as the reduction of and exemption from taxes and favourable conditions for land use to foreign-invested enterprises that invest in priority sectors, enterprises that are established and operated with the investment by overseas Koreans with the citizenship of the DPRK and foreign-invested enterprises that are operated in the special economic zone.

Preferential treatment in the rate of enterprise income tax is as follows.

1) Preferential treatment

– The rate of enterprise income tax of a foreign-invested business is 25 per cent of the taxable income but that of a business funded by an overseas Korean holding the citizenship of the DPRK is 20 per cent. (No. 1 of Article 20 of the Regulations for the Implementation of the Law of the Foreign-invested Business and Foreign Individual Tax)

– The rate of enterprise income tax of a foreign-invested business operating in the Rason economic and trade zone is 14 per cent of the taxable income but that of a business funded by an overseas Korean with the citizenship of the DPRK is 10 per cent. (No. 2 of Article 20 of the Regulations for the Implementation of the Law of the Foreign-invested Business and Foreign Individual Tax)

– The rate of enterprise income tax of a foreign-invested business engaged in the State-encouraged sectors—high technology, development of underground resources, infrastructure construction, scientific research and technological development is 10 per cent of the taxable income. This rate is 10 per cent lower than that of other income taxes of a foreign-invested business. (No. 3 of Article 20 of the Regulations for the Implementation of the Law of the Foreign-invested Business and Foreign Individual Tax)

– When a foreign enterprise earns other incomes such as income from dividends, interests, rent, royalties or other sources in the territory of the DPRK, such incomes shall be taxable at the rate of 20 per cent in other parts of the country and 10 per cent in the Rason economic and trade zone. (Article 10 of the DPRK Law on Foreign-invested Business and Foreign Individual Tax)

2) Privilege

Article 29 of the Regulations for the Implementation of the Law of the Foreign-invested Business and Foreign Individual Tax stipulates that:

-Tax may not be imposed on the dividends earned by a foreign-invested enterprise through business activities inside the DPRK.

– In case the government of a foreign country or an international financial organization grants loans to the government of the DPRK or a State bank, or in case a foreign-invested bank gives loans to a bank or an enterprise of the DPRK on favourable terms such as low interest rates (lower than the LIBOR) and the return period of at least 10 years including a grace period, the enterprise income tax on the interest on the loan may be exempted.

-The foreign-invested business which operates for at least 10 years either in the priority sectors or in the manufacturing sectors inside the Rason economic and trade zone may receive immunity from enterprise income tax for 3 years from the first profit-making year and reduction of up to 50 per cent during the two ensuing years.

Enterprise income tax may be exempted or reduced on an income earned by a financial business through offshore banking transactions.

-For a foreign-invested business that makes a total investment of at least 4 500 000 000 won in infrastructure construction projects such as railways, roads, telecommunications, airports and seaports inside the Rason economic and trade zone, enterprise income tax may be exempted for 4 years from the first profit-making year and reduced up to 50 per cent during the three ensuing years.

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Posted in DPRK Policies, Economic reform, Foreign direct investment, Law on Foreign Investment | Comments Closed

Chinese expand reach over DPRK’s coal

Wednesday, December 31st, 2008

Via China Knowledge:

Henan Yima Coal Mining Group, one of the leading state-owned coal miners in Henan Province, said the company planned to invest in a 10-million-ton coal mine and a 1.2-million-ton coal chemical project in North Korea, the China Daily reported.

The Chinese coal miner and the Anju Coal Mining Association, the country’s largest coal miner with nearly ten coal mines, signed an agreement on Dec. 12 to develop the two projects.

Under the agreement, the two projects, with Yima Group holding controlling stakes, will be built by stages. Auxiliary facilities, such as power plant and coal-selecting plant, are also expected to be jointly constructed by the two companies.  North Korea is rich in coal resource [sic], a main energy source of the country’s self-dependent economy.

Source:
Chinese coal miner taps into North Korea
China Knowledge
12/31/2008

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Posted in Anju Coal Mining Association, China, Coal, Economic reform, Energy, Foreign direct investment, Joint Ventures, Mining/Minerals | Comments Closed

Korea Buiness Consultants Dec ’08 newsletter

Tuesday, December 30th, 2008

Korea Business Consultants published their December 2008 newsletter.  You can read it on line here, or download the PDF here.

The following topics are covered:
Orascom Launches DPRK Mobile Phone Service
Pyongyang Undergoing Facelift
Obama’s DPRK Options
US Brothers Light Up DPRK Hospitals
Kuwait to Lend DPRK US$21.7 Million
DPRK Finds More Natural Resources
DPRK Engineers to Study Russian Rail Operations
Swedes to Make Jeans in DPRK
KNIC Wins Insurance Case
DPRK, ROK Agree on Tokdo
DPRK to Strengthen China Ties
Russia’s House Speaker to visit DPRK
DPRK, Singapore Sign Investment Agreement
DPRK Praises Yemen’s Reunification Example
ROK Wave on the Wane in DPRK
DPRK Girls World Soccer Champions
New DPRK Destinations
Korean Cuisine

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Posted in Economic reform, Foreign direct investment, Joint Ventures, Korea Business Consultants | Comments Closed

Distribution of Soy Sauce Resumed

Monday, December 29th, 2008

Daily NK
Lee Sung Jin
12/29/2008

A source has relayed news that North Korea has begun to so-called “essential food factories” in provincial capitals for the first time since Kim Il Sung’s death, and that distribution of soy sauce and soybean paste to civilians in those cities has resumed.

A source from Yangkang Province said in a phone conversation with the Daily NK on the 28th, “Essential food factories situated in each province entered production in October and every household has been provided with a kilogram of soybean paste and a kilogram of soy sauce on a monthly basis ever since. Such provision is on a par with the amount rationed when the Supreme Leader (Kim Il Sung) was alive in the 1990s.”

A North Hamkyung Province source said, “At a North Hamkyung Province essential food factory in Chongjin, production began in October and a kilogram of soybean paste and soy sauce has been being provided to each household once a month.”

North Korea changed the name of “food factories” in each city and province to “essential food factories” in 1993, and remodeled the buildings. It also pursued the modernization of equipment for soy sauce and soybean production. However, due to the “economic crisis” following Kim Il Sung’s death in 1994, the operation of all food factories ceased.

Accordingly, the resumption of operations has triggered the analysis that the “confidence” of the North Korean authorities has been restored regarding both North Korea’s agricultural production and the food situation this year.

A source from Yangkang Province emphasized, “Soybean and peas which have been coming in as foreign aid have sometimes been used to produce the soybean and soy sauce to be provided to Pyongyang, the military and the construction units, but this is the first time that rations to average civilians have resumed since the Kim Il Sung’s death. The reason for the state’s display of concern for the civilian economy is because farming went well this year.”

He then said, “Not only in Yangkang Province, but essential food factories in Hamheung and Pyongsung have also been brought back online. The civilians are hoping that soybean paste and soy sauce distribution will be normalized.”

The source noted, “In the Hyesan Essential Food Factory, approximately 22 tons of ingredients for soybean paste and soy sauce, including peas and wheat, are used daily. At such a rate, a kilogram of soybean paste and soy sauce can be provided to civilians each month over a fixed term.”

He then went on to explain the backdrop, “The storage capacity of the soybean paste fermentation tank in the Hyesan Essential Food Factory is about 60 tons, but with the 22 tons of ingredients that have been coming in each day, only a portion of the production equipment has been operating.

According to North Korea’s central pricing system, a kilogram of soybean paste and soy sauce are 150 North Korean Won and 80 won, respectively. The source added, however, “The soybean paste produced from the factories has been extensively sold in the jangmadang for 300 won per kilogram. Homemade hot pepper paste has been being sold for 900 won per kilogram.”

Therefore, North Korean authorities are said to have held civilian education lectures nationwide, on or around the 19th, stressing the subject, “Regarding strictly adhering to the national grain regulations and preserving army rations as the top priority.”

The source added, “Within less than a month of the resumption of the essential food factories, some managers and cadres of the factories were found to have embezzled the soybean paste ingredients, so the state authorities held formal reeducation lectures for officials. Also, the civilians in the counties or farmlands have not been receiving soy sauce and soybean paste, because only the essential food factories have been operating.”

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Posted in Food, General markets (FMR: Farmers Market), Price liberalization, Public Distribiution System (PDS) | Comments Closed

Inter-Korean trade falls for second straight month

Saturday, December 20th, 2008

Quoting from the Korea Times:

Inter-Korean trade fell 27.7 percent in November from a year earlier to $142.72 million, according to the ministry data posted on its Web site.

“Payments to North Korea are mostly made in dollars or euro, so the weak Korean currency has been the primary reason behind the falling trade,” a ministry official was quoted as saying.

More than 80 South Korean firms produce watches, shoes, clothes and kitchenware at a joint industrial complex in the North’s border town of Gaeseong. North Korea also exports sand to the South.

In October, South and North Korea traded goods and services worth $163.06 million, down 23.2 percent from a year earlier.

Meanwhile, inter-Korean trade from January to November reached $1.69 billion, an increase of 3.7 percent from the same period in 2007.

And According to the Hankyoreh (h/t OneFreeKorea):

According to a report, seven companies have canceled their contracts to build facilities at Gaeseong complex since October. Three of the seven bought space at a site reserved for machinery and metal cooperatives in June, and were in the process of constructing or designing factories. The report was submitted to Rep. Chun Jung-bae of the main opposition Democratic Party by the division supporting the Gaeseong Industrial Complex at the Ministry of Unification.

Two companies are in situations unrelated to the breakdown in inter-Korean relations, one had a fire last summer and another is suffering from losses incurred as a result of investment in KIKO, “knock-in knock-out” currency options trading.

The remaining five companies were believed to have abandoned their plans because of the deterioration in inter-Korean relations. An official at one of the five companies, which canceled its investment contract in December, said, “Although the economic crisis was one of the reasons why we canceled the contract, the main reason was that business prospects have darkened due to strained inter-Korean ties. Other companies that moved to (the Gaeseong complex) at the same time also decided to cancel their contracts for the same reason.”

In canceling their contracts, the seven companies forfeited their initial investments, which ranged from 17 million won (US$12,500) to 70 million won each. Land at the Gaeseong Industrial Complex was sold at 45,000 won per one square meter and the companies paid 10 percent of that price as part of their deposit.

Seven other companies also canceled their contracts last year, but they did so after an on-site feasibility study was conducted and it was determined that their businesses were not financially viable. All seven companies were able to receive their deposits under a special provision on contract cancellation, which allows companies to receive their deposits if the contract is canceled within six months of when it was signed.

The companies that canceled their contracts this year were not able to take advantage of the provision because they canceled over six months after signing their contracts.

There are growing concerns that more companies may be canceling their contracts as well. The head of Company “H,” who signed a contract to build a facility at the Gaeseong complex last year, said, “Though I would lose my initial investment of several millions of won, I’m considering canceling the contract because the tensions inter-Korean relations are likely to continue for another five years.”

Read the full story here:
Inter-Korean Trade Falls for Second Straight Month
Korea Times
12/20/2008

More companies cancel contracts at Gaeseong complex
Hankyoreh
12/17/2008

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Posted in Economic reform, Foreign direct investment, Joint Ventures, Kaesong Industrial Complex (KIC), Light Industry, Manufacturing, South Korea, Special Economic Zones (Established before 2013), Statistics, Trade Statistics | Comments Closed

North Korea between collapse and reform

Friday, December 19th, 2008

Asian Survey Vol. 39, No. 2 (Mar. – Apr., 1999), pp. 287-309
Kongdan Oh and Ralph Hassig

Download PDF here or download from Jstor.org here

The refusal of North Korea’s letters to institute serious economic reforms has frustrated those who study the country and those who seek to alleviate the suffering of the North Korean people.  Two French medical aid organizations have withdrawn from the country complaining that the Pyongyang government interfered with their work.  This is but one sign of a growing donor fatigue.  The muddling through plan that the Kim regime has adopted involves soliciting foreign aid, bargaining with its military and nuclear products, making minimal unofficial changes in the domestic economy, and waiting for the international environment to become more favorable—perhaps even expecting a resurgance of international communism.  Equally important, Kim and his ruling cohorts are willing to sacrifice the economic health of their nation for the security of their regime, just as other dictators, both communist and non-communist have done.  The painful difference in North Korea’s case is that it is half of a divided nation, posing an immediate humanitarian dilemma for the millions of Koreans in the Southern half of the penninsula whose families are suffering in the north.  For this reason more than any other, the future of North Korea cannot be ignored.  

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Posted in 1990s Famine, 2002 Economic reforms, Agriculture statistics, Arduous March, Black markets, Demographics, DPRK Policies, Economic reform, Emigration statistics, Food, Foreign aid statistics, GDP statistics, General markets (FMR: Farmers Market), Juche, Rason Economic and Trade Zone (Rajin-Sonbong), Special Economic Zones (Established before 2013), Statistics, Trade Statistics | Comments Closed

DPRK to remove inactive Chinese companies from Rajin

Friday, December 19th, 2008

Quoting from the article (h/t Oliver):

North Korea is preparing to remove inoperative foreign companies from a special economic zone in the country’s northeast, officials said after a report that some Chinese firms in the area were asked to leave.

“North Korea appears to have conducted a survey in October to sort out companies that exist only on paper from the Rajin-Sonbong economic zone,” Kim Ho-nyoun, spokesman for the Unification Ministry, told reporters.

He was responding to a request to confirm a recent report by a local daily, the Dong-a Ilbo, that Pyongyang has asked an unspecified number of Chinese firms there to evacuate by the end of November. The firms did not comply with the request since it was not mandatory. About 250 Chinese firms are on the registry, according to the daily.

Although pure speculation, this could also be due to the influence of the Russian government—who has made no secret of its desire to invest in the Rajin.  Russia is also upgrading the railway track from Kashan to Rajin. 

Source:
N Korea to remove inactive cos from Rajin-Sonbong Economic Zone
Asia Pulse Businesswire
(Yonhap)
December 16, 2008

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Posted in China, Economic reform, Foreign direct investment, Rason Economic and Trade Zone (Rajin-Sonbong), Russia, Special Economic Zones (Established before 2013) | 3 Comments »

Orascom 3G wrap up

Friday, December 19th, 2008

UPDATE: Here is an older paper by Stacey Banks which I have not read: North Korean Telecommunication: On Hold.

ORIGINAL POST: On Monday the Orascom 3G mobile network launched in North Korea.  Just about everyone covered this story…so here are the highlights:

Telecommunications in North Korea: Has Orascom Made the Connection?
Working Paper: Marcus Noland

The topicality of the second paper, on the Egyptian firm Orascom’s role in North Korea’s telecommunications modernization, received a boost this week with the announcement in Pyongyang that Orascom was finally rolling out its cell phone service and creating a joint venture bank with a North Korean partner.  The planned Orascom investments are large: if actualized, they would be the largest non-Chinese or non-South Korean investments in North Korea, and would exceed total private investment in the Kaesong Industrial Complex to date

Financial Times

Orascom is confident North Korea is opening up its economy and says it has been assured by the ­government that everyone will be allowed to buy a mobile. However, experts think that such a volte-face is highly unlikely and reckon only senior military and government officials will be allowed access, and then only to a closed network.

When asked how many people would ultimately use the service, Orascom’s chairman Naguib Sawiris said: “We have a modest target of 5 to 10 per cent of the population.” The population is about 23m. Mr Sawiris expects 50,000 subscriptions in the first three-to-six months.

Jim Hoare, Britain’s former chargé d’affaires to Pyongyang, says the new network is bound to have severe restrictions.

“It’s unlikely that a country that doesn’t allow you to have a radio unless it’s set to the state frequency will suddenly allow everyone to have mobile phones. It’s more credible that there will be a limited network for officials in Pyongyang and Nampo.”

Dong Yong-sung, chief of the economic security team at the Samsung Economic Research Institute in Seoul, believes another obstacle to ordinary North Koreans owning phones will be the cost. “As far as I know, mobile phone registration costs about $1,000,” he said, a sum equivalent to the average annual income.

(NKeconWatch: Others put the price at $700…and there are many problems with asserting that the DPRK’s per capita income is $1,000 per year.)

Bloomberg

The inauguration of Koryolink took place today in North Korea, Orascom Telecom said in an e-mailed statement. Orascom Telecom Chief Executive Officer and Chairman Sawiris attended the event, a company official said, requesting anonymity. The Cairo- based company got a 25-year license and exclusive access for four years in January. It plans to spend as much as $400 million on a high-speed network and the license for the first three years.

The North Korean venture is “in line with our strategy to penetrate countries with high population and low penetration by providing the first mobile telephony services,” Sawiris said in a statement earlier this year.

CHEO Technology JV Company, the North Korean unit that will operate under the Koryolink name, is 75 percent owned by Orascom Telecom and 25 percent by the state-owned Korea Post and Telecommunications Corporation.

The unit will see average revenue per user of $12 to $15 this year as Orascom Telecom targets three of the country’s biggest cities, according to company forecasts.

Koryolink has rolled out its so-called third-generation grid to initially cover Pyongyang, with a population of 2 million.

Orascom is counting on four potential markets in the Stalinist nation, according to a study by Marcus Noland of the Peterson Institute for International Economics.

The military and government officials are the top targets, followed by foreigners working for UN organizations and diplomats. The others are customers from South Korea, which has several economic projects with its neighbor, and local demand from rich North Koreans.

To protect its investment, Orascom “hedged its bet, committing only half of its investment at the outset and making additional investment conditional on its assessment of conditions going forward,” Noland said.

If the deal is threatened, Orascom may withdraw specialized equipment or technicians, reducing the value of the network to Pyongyang, Noland said in his study.

“Orascom may have spread the wealth informally, creating beneficiaries within the decision-making apparatus who would stand to lose if the agreement failed,” according to the study.

Bloomberg

Orascom Telecom, the Middle East’s biggest wireless company, opened Ora Bank in Pyongyang in the presence of Chairman and Chief Executive Officer Naguib Sawiris, a company official said on condition of anonymity. Ezzeldine Heikal, who is also head of Koryolink, Orascom’s North Korean mobile-phone network, was appointed president of the bank, the official said without providing further details.

“This is a big deal, especially as far as North Korea is concerned, because the current banking system is virtually non- existent,” Marcus Noland of the Peterson Institute for International Economics said in a telephone interview from Washington, D.C. “It’s a ground that others have feared to tread and is perhaps an endorsement for North Korea that says ‘we’re open for business.’”

Ora Bank is a joint venture between Orascom Telecom and North Korea’s state-owned Foreign Trade Bank, North Korea’s official news agency reported today. The director of North Korea’s central bank Kim Chon Gyun and Egypt’s ambassador to Pyongyang Ismail Abdelrahman Ghoneim Hussein, were also present at the opening ceremony, the news agency said.

Radio Free Asia

Chinese traders who regularly travel back and forth to North Korea said local residents showed little enthusiasm for the new service, which cost more than U.S. $900 to set up before the Ryongchun explosion.

North Korean defector Kim Kwang-jin, a senior researcher at the Institute for National Security Strategy in Seoul, said the fact that the government had once pulled the plug on North Korean cell phones meant that it could easily do so again.

“In the beginning, people will be hesitant, because a few years ago many of them made a big investment in cell phones. But service was suspended abruptly, so they are still very concerned that might happen again,” Kim said.

“People are also worried that the ability to pay such a high amount of money for a cell phone may raise a red flag and bring them under scrutiny by the North Korean authorities.”

Most foreigners are banned from using cell phones while in North Korea, although a network for government officials is believed to exist in the capital, Pyongyang.

(NKeconWatch: I personally saw elite North Koreans use mobile phones and even some western journalists in 2005.)

The Guardan

North Korea first experimented with mobile phones in 2002, but recalled the handsets 18 months later after a mysterious train explosion that killed an estimated 160 people. Some experts argue that officials feared the incident was an attempt to assassinate the regime’s “dear leader”, Kim Jong-il, and that mobile phones were involved.

BBC

Some reports suggest that handsets for the new network will cost around $700 each, putting them far beyond the reach of the vast majority of people in the impoverished country.

Choson Ilbo

Although the technology would enable users to send and receive text messages and video content, North Korean customers will only be allowed to speak over their phones.

BMI Political Risk Analysis, Dec 16, 2008 (h/t Oliver)

BMI View: North Korea has officially begun third-generation (3G) mobile phone services, thanks to Egypt’s Orascom Telecom (OT). However, the growth of the network could be limited by the regime’s fear that mobile phones will increase the scope for anti-regime activities.

North Korea has officially commenced third-generation (3G) mobile phone services, thanks to an investment by Egypt’s Orascom Telecom (OT). The firm’s initial target is 100,000 subscribers in three major cities, including Pyongyang, and it eventually hopes to develop a nation-wide network connecting North Korea’s 23mn citizens. OT has promised to invest US$400mn in network infrastructure over the next four years. It has signed a 25-year contract with the North Korean government, and owns 75% of their joint-venture (known as Korealink). OT’s exclusivity rights will last for four years. Orascom’s foray is something of a coup, given that North Korea’s communications network is so rudimentary (for further background see December 8 2008, Industry Trend Analysis – North Korea Prepares For Mobile Network Launch).

Why Pyongyang Fears Mobile Phones
North Korea launched a mobile phone service operated by a Thai subsidiary firm in 2002, but reversed course in 2004, apparently because of a devastating bomb blast on a train in Ryongchon in April of that year. Given that North Korean leader Kim Jong Il’s personal train had passed through the area only a few hours earlier, there was speculation that the explosion had been an assassination attempt, possibly triggered by mobile phone. Since then, only those living in areas close to the border with China have had access to mobile phones, thanks to the proximity of the Chinese network.

Aside from the notion of mobile phones as bomb triggers, they can also make it easier for citizens to communicate with one another. This would increase citizens’ ability to organise anti-government activities – such as protests or sabotage. For example, the popular uprising that led to the overthrow of Philippine president Joseph Estrada in 2001 was dubbed the ‘text message revolution’, because that is how the marches were announced and coordinated. Admittedly, the Philippines is a far more open society than North Korea, but the subversive aspect has not been lost on the regime.

Mobile phones would also make it easier for North Koreans to communicate with the outside world, and thus allow the real-time transmission of information or intelligence to foreign media or spy agencies, and vice versa. They would also allow the North Korean elite to communicate more efficiently, allowing dissident elements to plot against the regime.

Thus, even something as basic as mobile phones are seen as potentially regime threatening.

Mobile Service Difficult To Spread
Consequently, Orascom will surely find it difficult to spread its mobile service across the country. For a start, registration will be tightly watched. Secondly, the cost of the handsets, at several hundred dollars, will mean that only the political and moneyed elites will be able to afford mobiles. Of course, elements of the elite can ‘misuse’ their phones to arrange subversive actions if they deem it worthy, but it seems that the regime are counting on loyalty. Indeed, depending on the sophistication of their equipment, the regime will probably be able to snoop in on the elite’s conversations and movements, giving them an additional layer of security.

Read the full articles below:
Orascom eyes North Korean network
Financial Times
Christian Oliver
12/14/2008

Orascom Telecom’s Sawiris Signs North Korean Deal
Bloomberg
Tarek Al-Issawi
12/15/2008

Orascom Telecom of Egypt Opens Bank in North Korea
Bloomberg
Tarek Al-Issawi
12/16/2008

North Korea Brings Back Cell Phones
Radio Free Asia
Jung Young
12/16/2008

Secretive North Korea launches restricted mobile phone service
The Guardian
Tania Branigan
12/16/2008

N Korea launches 3G phone network
BBC
Steve Jackson
12/15/2008

N.Korea Restarts Cell Phone Service
Choson Ilbo
12/17/2008

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Posted in Banking, Cell phones, Central Bank, Communications, Economic reform, Egypt, Finance, Foreign direct investment, Foreign Trade Bank, Joint Ventures, Ministry of Post and Telecommunications, Ora Bank, Orascom Telecom Holding, Uncategorized | 5 Comments »

The NSA Smuggling Ring

Wednesday, December 17th, 2008

Daily NK
Lee Sung Jin
12/17/2008

Recently in the North Korea-China border region, North Korean smuggling groups associated with the National Security Agency have been actively operating.

A source from Yangkang Province relayed in a phone conversation with the Daily NK on the 16th, “On the 9th in Songjeon-ri, Kim Jong Sook County in Yangkang Province, a van ferried on a raft fell into the water, so the border guards and the National Security Agents tried to get it out in the middle of the day. The van was being smuggled from China by the ‘national smuggling group.'”

The “national smuggling group,” or “NSA smuggling group,” which earned its epithet from the North Korean citizens, is directly operated by the National Security Agency and is composed of soldiers, well-to-do merchants, Chinese emigrants, and Chinese relatives of officials.

The group was organized in the fall of last year and has been in operation since then. The source added that its size, members, and range of traded items have significantly increased.

The source stated further, “In Hyesan alone there were at least three smuggling groups by the end of the summer, but with the passing by of the fall harvesting season, there are now about seven in operation. With the National Security Agency making profit from these groups, the No. 8 Bureau of the Chosun (North Korea) People’s Army (in charge of mobilizing war supplies) even formed a group last summer.”

In particular, it has become known that the No. 8 Bureau, under the patronage of the National Security Agency, sold a massive supply of medicinal herbs secured in North Korea to the Chinese merchants in exchange for Chinese rice.

The source emphasized, “Usually, there are four or five active members of a smuggling group. In the past, they only smuggled at night, but the groups have lately been taking advantage of quiet places during the day to hand over goods.”

He said, “When the groups engage in smuggling, the commander or vice-commander of the border guard unit will go on duty. After the National Security Agency calls the border unit, the smuggling group(s) goes out at a pre-determined time and hands over the goods.”

Goods that are currently handled by the groups are not only marine products or scrap iron, but are increasingly high-priced goods such as gold or drugs, because they can be traded for cash.

The source explained, “The smuggling groups have to give approximately 30 million North Korean won (approximately USD8,500) per person a month to the state, but ordinary smuggling does not suffice to make such a sum of money. The state severely punishes trading drugs or gold, but given the exorbitant sum which has to be paid to superiors, there has been a tendency to engage in the trading of such goods.”

He noted, “Nowadays, each unit acquires the necessary goods, so the border smuggling channel created by private individuals for trading has also been used by the national organization.”

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Posted in Black markets, Economic reform, Illicit activities, Ministry of State Security (MPSS, NSA, SSD) | Comments Closed

Water Trade Burgeoning in North Korea

Monday, December 15th, 2008

Daily NK
Moon Sung Hwee
12/15/2008

Amidst the trend of increasing numbers of civilians trying to make ends meet through trade in the wake of the July 1st Economic Management Reform Measure, medical students in North Korea have started doing business by drawing water from the Yalu River.

However, due to the territorial nature of the Yalu River, water-selling, and attendant incidents of violence in order to grasp commercial rights, have become more frequent.

A source from Yangkang Province said in a phone conversation with the Daily NK on the 9th, “Three Hyesan Medical School students who were selling water near the People’s Committee of Yangkang Province building attacked a couple in their 30s, who had to be taken to hospital on the 7th.”

The source said, “Generally, the Yeinbong-dong (in Hyesan) is where students of Kim Jong Sook College of Education and Bongheung Middle School sell water, and the area around Hyemyung-dong is designated for Hyemyung Middle School and Hyesan Medical School students. The Hyesan Medical School students mistook the villagers drawing water for people trying to enter their zone, so the incident erupted.”

According to the source, the medical school students used their handcart to crash into the couple’s sleigh. The husband, angry at this, hit one of the students, which provoked the two remaining students to collectively assault the couple and flee.

The source relayed, “Subsequently, the relatives of the couple and their friends sought out the Hyesan Medical Student dormitory with axes and spades, so the People’s Security Agency (PSA) was called. The PSA searched all over the dormitory, but ultimately could not find the suspects.”

In Hyesan, Yangkang Province, as water provision to civilians became more erratic due to failing subsistence, the business of drawing supplies from the Yalu River to take to far-flung regions started springing up. Not only does the business not require much capital, but water can be fetched from the Yalu River with a handcart or a sleigh and be sold in residential areas, so it is popular among college students who come from farming regions to Hyesan, or among middle school students.

“Selling water is mostly monopolized by middle school and college students. This is a job that ordinary people will take up as a last resort,” the source said.

He added, “Those college students who come from the country side and live in dormitories take up this business. A portion of middle school students, in order to contribute to the livelihoods of their families or to make personal allowances, choose to do it as well.”

“In Hyesan right now, 50 liters of water costs around 300 North Korean won, and a 70-liter Chinese bucket sells for 400 won,” he explained.

He then said, “Water is fetched from the Yalu River with a handcart or a sleigh: one sleigh can carry about four to five 50-liter water buckets. This business cannot be done solo, so people usually undertake this in groups of three or four.”

The source stated, “Water merchants go back and forth between the Yalu River and where they are based at least four times a day. Sometimes, they can even go seven to eight times a day, but there are not too many people who buy water.”

“Those who buy water are mostly cadres or merchants who have to go to the markets. Also, people who sell liquor or tofu require a lot of water. With so many water merchants, incidents of fighting over territory are quite common.”

Hyesan, which began receiving aid from international organizations in 2003, was the pride of the North Korean authorities, especially since the completion of a “natural water supply system” which took two years to construct. However, as a result of simultaneously burying the water and the sewage system at the time of construction, the polluting of the city’s water resulted. The residents of densely populated areas, which are located mostly on hillier regions relatively far from the Yalu River, have not been receiving tap water, noted the source.

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Posted in Black markets, Economic reform, General markets (FMR: Farmers Market), Water | Comments Closed

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