North Korean Economy Watch

According to Yonhap:

South Korea has significantly reduced import quotas for eight North Korean agricultural goods, government officials said Sunday, amid the enforcement of strong U.N. economic sanctions on the communist nation.

According to a public notice posted by the Unification Ministry, the amounts of six North Korean goods allowed to be shipped to the country, including crab, shrimp and peanut products, have been reduced to half from those of last year while the import quota for sesame seed has been reduced from 300 tons to 100 tons.

An official at the ministry, Seoul’s key office on North Korean affairs, said the move had little to do with the U.N. sanctions that were imposed shortly after the North’s second nuclear detonation test last year.

“The items, whose import quotas have been reduced this year, are the ones we had little imports of in the past five years,” the official said, asking not to be identified. “The change was only to reflect the actual amount of imports.”

The import quota for mung beans doubled from 1,000 tons last year to 2,000 tons while that of soybeans also increased from 2,000 tons to 3,000 tons, according to the official.

The government places import quotas on certain items to protect domestic markets and producers, he noted.

This comes as South Korea ends imports of North Korean sand.

According to the Financial Times:

South Korea is to phase out its main import from North Korea, delivering a heavy blow to an impoverished regime already reeling economically from confiscated arms shipments and bungled currency reforms.

Sand was the biggest export to South Korea from the north in 2008, earning Pyongyang $73m (£47m). That represents about twice as much as it gains annually from wages at factories in Kaesong, a cross-border industrial zone for South Korean companies.

South Korean officials told the Financial Times that Seoul would phase out sand exports when existing contracts with its northern neighbour expired.

“Once those companies receive their sand, for which they have already paid, that will be the end,” a senior South Korean security official said.

It could have a profound political impact – but South Korean officials insist the decision was taken because Seoul increasingly dredges its own sand domestically.

Officials admit that South Korea has long worried that money paid for sand goes to the military, but they say increased dredging and the imminent conclusion of numerous outstanding contracts have given it the opportunity to end the trade.

…

North Korea is trying to compensate for South Korea’s decision by seeking alternative sand markets in Russian construction projects.

Russia’s Itar-Tass news agency reported late last year that North Korea would ship sand to Vladivostock for use in building projects for the Asia-Pacific Economic Co-operation summit in 2012.

Sand shipments to South Korea started in 2002 amid inter-Korean rapprochement – but were suspended last March while North Korea prepared to fire a long-range missile over Japan.

Pressed by construction companies that have been affected by the import ban, Seoul resumed imports from North Korea in November. The current flow, however, is less than one-fifth of previous levels.

In an effort to salvage the trade with South Korea, Pyongyang has offered to provide sand to South Korean companies in exchange for other building materials and fuel.

But the South Korean unification ministry said domestic companies were not interested and had not applied for export licences to conduct such swaps.

Previous posts on North Korean sand can be found here. 

Read the full story here:
North Korea hit by Seoul move to end valuable sand imports
Financial Times
Christian Oliver and Song Jung-a
3/19/2010

According to the Associated Press (via Los Angeles Times):

The North Korean’s note, scrawled in pen, was simple: “I want to go to South Korea. Why? To find freedom. Freedom of religion, freedom of life.”

The ex-logger, on the run from North Korean authorities, handed the note over to a South Korean missionary in the Russian city of Vladivostok last week in hopes it would lead to political asylum.

Just before he was to meet Thursday with the International Organization for Migrants, a team of men grabbed him, slapped handcuffs on him and drove off, rights activists in Moscow said Friday. He was spirited away to the eastern port city of Nakhokda, where he is sure to be handed back over to North Korean officials and repatriated to his communist homeland, activists said in Seoul.

Police in Vladivostok refused to comment. A senior South Korean diplomat in Vladivostok said he had no information. Officials from the U.S. consulate in Vladivostok could not be reached for comment.

The 51-year-old would be the third North Korean logger in Russia in a week to make a bid for asylum. On March 9, two other North Koreans who had fled their jobs as loggers managed to get into the South Korean consulate in Vladivostok.

Russia’s RIA Novosti news agency reported last week that two North Koreans climbed a fence, ran past the guards and entered the consulate, saying they wanted political asylum. ITAR-Tass carried a similar report.

The incidents focused attention on the precarious existence of tens of thousands of North Koreans sent by the impoverished regime to work in neighboring Russia.

Russian government figures from 2007 put the number of North Korean laborers at 32,600, most of them working in logging in the remote east.

The Rev. Peter Chung, a Seoul-based activist, said there are about 40,000 North Korean loggers in Russia, but that some 10,000 of them have fled their work sites. Some are finding work as day laborers while others are in hiding as they try to map out how to win asylum in foreign diplomatic missions.

The North Korean described the conditions as unbearable. His government took half his meager wages, while the North Korean company operating the logging camp took 35 percent. He kept just 15 percent — about $60 a month — an arrangement that rendered him “virtually a slave,” he told activists.

He eventually fled the logging camp, taking odd jobs to survive. He also became a Christian, Chung and Kim Hi-tae said, which could draw severe punishment, even execution, back home.

The successful asylum bid of two other former North Korean loggers inspired Kim to make a similar attempt, Chung said.

Previous posts on the North Korean loggers in Russia can be found here. More here. And here. And here.

Read the full story below:
3rd North Korean logger attempts to defect in Russia, propelled by dream of ‘freedom of life’
Associated Press (via Los Angeles Times)
Kim Kwang Tae
3/19/2010

According to Yonhap:

Inter-Korean trade soared 52.1 percent from a year ago to US$153.49 million in February, according to the report by the Korea Customs Service.

South Korea’s outbound shipments came to $77.14 million while its imports from the communist country amounted to $76.35 million for the South’s trade surplus with the North reaching $792,000, the report said.

The surge came as the global economy is on the road to recovery. Inter-Korean trade is expected to soar this year thanks to rising demand amid an economic turnaround, the customs office said.

Nearly half of the companies participating in inter-Korean trade responded that two-way trade will increase this year, according to a survey by the Korea International Trade Association.

In January, the country ran a deficit of $9.55 million from its trade with the North after posting a surplus of $23.91 million in December 2009 for the first time in 16 months.

Bilateral trade has increased steadily over the past decade from $328.65 million in 1999 to $651.68 million in 2002 and surpassing the $1 billion mark for the first time in 2005.

Inter-Korean trade reached $1.79 billion in 2007 and peaked at $1.82 billion the following year. But it fell slightly last year to $1.66 billion.

Read the full article here:
Inter-Korean trade jumps 52 percent in Feb.
Yonahp
3/17/2010

UPDATE: Well I am very surprised. Someone (probably a Singaporean) paid the ransom for the North Korean crew. According to the AFP:

Somali pirates on Tuesday freed a chemical tanker with 28 North Korean sailors on board after receiving 3.5 million dollars in ransom, a maritime official said.

The Virgin Islands-owned, Singapore-operated MV Theresa VIII was hijacked on November 16 some 180 nautical miles northwest of the Seychelles.

“It was freed today. The crew is safe,” said Andrew Mwangura, the head of the East African Seafarers Assistance Programme.

Mwangura said a 3.5 million-dollar ransom was paid to free the tanker.

The European Union naval force off the Somali coast confirmed the payment of a ransom.

“An unknown ransom was exchanged on the morning of 16 March and the ship is now underway and heading out to sea,” the EU NAVFOR said in a statement.

“No immediate assistance has been requested but EU NAVFOR will continue to monitor the situation,” it added.

The ship had been moved between the pirates’ stronghold coastal villages of Garaad and Harardhere in northern Somalia.

Its captain, whose nationality was not revealed, died a few days after the hijacking in which the pirates opened fire.

The MV Theresa VIII was headed to the Kenyan port town of Mombasa, its initial destination, Mwangura said.

The Somali pirates, who raked in at least 60 million dollars in ransom money last year, currently hold at least six ships and around 120 seamen hostage.

There is also a DPRK flagged vessel that was hijaked by Somali pirates in February.  As best I can tell, this vessel is still being held for ransom.

ORIGINAL POST: In October 2007 the US Navy assisted some North Korean merchants in their victory over Somali pirates.  In a grudge match this week, however, the North Koreans succumbed to the new Somali pirate team.  The score is now 1-1.

According to the BBC:

A chemical tanker with a crew of 28 North Koreans has been hijacked by pirates in waters off Somalia, the EU’s naval force (Navfor) says.

The MV Theresa VIII, a Singaporean-operated tanker, was taken on Monday in the south Somali Basin, 180 nautical miles north-west of the Seychelles.

It had been heading for Mombasa, Kenya, but was diverted north, Navfor said.

The MV Theresa VIII, the owner of which is based in the Virgin Islands, is a tanker of 22,294 deadweight tonnes, said Navfor, the EU naval force operating in the region to protect shipping.

Some thoughts:

1. Globalization in action: The ship is owned by someone in the Virgin Islands, managed by a Singaporean company, operated by a North Korean crew, and taken hostage by Somali pirates.

2. As sad as it sounds, hiring North Korean crews might be an effective anti-piracy strategy.  Here is why: Pirates hold (a) the ship, (b) the cargo, and (c) the crew as hostages to be traded for ransom. Using simple expected value calculations, this means that the rational pirate will pillage if:  [P(probability of success)] x [$(a+b+c)] > the next best opportunity to earn income.  This ignores risk tolerance, but you get the idea. If you lower the $ value of the payload by hiring workers who will not earn a ransom, then the expected value of the captured ship falls and fewer pirates will attack.  If this plays out in a way that the Somalis lose money on North Korean crews (because who is going to pay their ransom), we should expect to see more shipping companies hiring North Korean crews and painting North Korean flags on their vessels! Old ships + North Korean crew + agricultural goods = waste of time for pirates.

*  win with assistance from the US Navy.

UPDATE:  Football officials deny DPRK laborers working on stadiums. South Korea trying to confirm.

ORIGINAL POST: Over the last few years I have developed a growing catalogue of North Korean-made buildings and monuments in Africa (like this)–so I was very interested to read that North Korean laborers are working on South Africa’s World Cup football stadiums.

According to the Joong Ang Daily:

When North Korean national football players take the field against the Ivory Coast in their final Group G match in the 2010 International Football Association’s World Cup in South Africa, they will be playing at a stadium their compatriots helped build.

South Korean sources said yesterday North Korean laborers are helping to put the finishing touch on stadiums across South Africa ahead of the World Cup, which will kick off in June.

“North Koreans have been put to work on four to five stadiums that require renovation, including Soccer City stadium in Johannesburg [satellite image here], where the opening and closing ceremonies, plus the final will be staged,” a source said. “There are an estimated 1,000 North Koreans there.”

One such stadium is Mbombela Stadium in Nelspruit (Location here but image takem before construction). The North will face the Ivory Coast on June 25 in this 43,500-seat stadium.The South African government has slated 12 billion rand, or $1.6 billion, for 10 stadiums in nine different cities, and North Korean laborers are expected to reap tens of thousands of dollars for their job.

“During the Kim Il Sung era, North Korea built football stadiums and even presidential halls in African nations,” recalled Lim Il, a North Korean defector who used to work for a construction company in the North. “Perhaps such experience helped secure the South African job.”

North Korea and South Africa established formal diplomatic ties in August 1998. This is their first major personnel exchange since then. It is not yet clear if the workers in South Africa will return home upon completing the World Cup work or will be dispatched to other construction projects.

Helping South Africa can be interpreted as an attempt to earn some much-needed foreign capital. North Korea has up to 30,000 laborers in China, Russia and some Middle Eastern countries. Last September, North Korea sent nearly 50 workers from the state-run Mansudae Art Studio in Pyongyang to construct the 160-foot, $27-million statue depicting a family rising from a volcano in Senegal.

One South Korean government official said, “The North government will likely demand loyalty from those workers and collect their wages to add to their foreign currency reserve.”

If anyone can help me identify the stadiums on which the North Koreans are working I would appreciate it.

Read the full story here:
North hard at work on Cup stadiums
Joong Ang Daily
Lee Young-jong
3/15/2010

According to the Joong Ang Daily:

North Korea has unilaterally raised rental fees for offices of foreign embassies and international agencies by 20 percent this year, at the same time that it tightens its grip on communications at the establishments, sources said.

A source privy to North Korean affairs said last week that the North Korean Foreign Ministry sent notices to the foreign offices last October and the increase took effect at the beginning of this year. The source also said commodity prices in markets specifically set up for foreigners have soared.

“Following the currency reform last November, the North may have wanted to earn some foreign currency by raising the rents and commodity prices,” the source said. “As far as I know, diplomats and their families are angry that the North has violated diplomatic protocols.”

Pyongyang has diplomatic offices for 25 nations, plus the office for World Food Program among other the United Nations agencies. Most rent out space in buildings owned by North Korea.

Pyongyang-based diplomats have also been asked to celebrate North Korean holidays by purchasing flowers or writing congratulatory messages.

“On Kim Jong-il’s 68th birthday last month, the North asked the diplomats to buy wreaths, made up of ‘the Kim Jong-il flowers,’ and write messages praying for Kim’s health under the ambassador’s name,” one source explained. The source did not know if the diplomats complied.

North Korea is also cracking down on the flow of information within foreign missions and agencies. The North rejected a request by a UN agency to use the Internet to send documents to UN headquarters. When diplomats make international phone calls, North Korean interpreters are there to listen in on the conversation, sources said.

“The North may want to block any details on Kim Jong-il’s health, disruption after the currency reform or other domestic affairs from reaching the outside world,” a South Korean government official said.

One Western diplomat, asking for anonymity, recently complained to a South Korean government official that diplomats in Pyongyang can’t talk to each other freely for fear of others listening in, and that they only vent their frustration when they’re out of North Korea.

In addition to making money from the foreign embassies in Pyongyang, the DPRK earns revenue from its embassies abroad.  See here, here, here, here, here, and here.

Most Pyongyang embassies (aside from Russia and China) are located in Munsudong (satellite image here). Recent photos of Pyongyang’s diplomatic quater here.

This is a fascinating topic.  What are the rental rates now?  How are they determined?  If anyone has an idea, please let me know.

Read the stories below:
Diplomats in North face price hike
Joong Ang Daily
Lee Young-jong
3/15/2010

According to Yonhap:

North Korea brought in 13,834 tons of grain from the neighboring ally in January, a 3.6-fold increase from 3,869 tons in January last year, said Kwon Tae-jin, a senior researcher on the North’s agricultural sector at the South’s Korea Rural Economic Institute in a posting on his blog.

Rice accounted for about 61 percent or 8,425 tons of the North’s grain import from China, followed by corn with 3,448 tons, beans with 1,553 tons and wheat with 304 tons, Kwon said, citing data from the Korea International Trade Association.

“The big rise in imports of corn and beans, which the North didn’t bring in last year, appears to be not only because corn harvests were not good, but it also suggests the North increased imports over concerns about possible food shortages,” he said.

Kwon also said that the North’s regime could have increased imports to enlarge state food rations after last year’s currency reform caused strains on the country’s food supply system.

North Korea has relied on foreign handouts to feed its 24 million population after natural disasters and mismanagement devastated its economy. The situation worsened in recent years as South Korea halted regular food aid to the North after President Lee Myung-bak took office in early 2008 under a policy to link aid to Pyongyang’s process in ending its nuclear weapons programs.

… 

The U.N. food agency, Food and Agriculture Organization, said early this month that the North is expected to be short of about 1-1.2 million tons of food this year.

I think the data for this story came from this KITA web page, but I can’t be sure since my Korean is exceptionally limited. Here is a description of the KITA page in English.

On a personal note, I wish the major South Korean media outlets  would get into the habit of posting links to their sources.  It is not difficult to do this.  

Read the full article here:
N. Korea’s food imports from China more than triple in January: expert
Yonhap
3/12/2010

According to the Choson Ilbo:

“Wealthy people in Pyongyang prefer goods to cash as they have lost confidence in the North Korean currency since the reform,” it said. “Demand for South Korean goods, which are considered best quality, has more than doubled.”

The broadcaster quoted a Korean-Chinese trader dealing with the North as saying, “Growing numbers of people want to smuggle South Korean products and sell them in the North despite a crackdown by North Korean customs.” It said the widespread perception among North Koreans is that South Korean goods are of much better quality than Japanese or Chinese products.

Sinuiju Customs Office lets small quantities of South Korean goods that do not seem to be for sale pass through on condition that they do not carry “Made in Korea” labels, but is strict about seizing larger quantities.

Favorite products include luxury goods like necklaces and earrings, electronic home appliances such as TV sets, DVD players, digital cameras, and notebook computers, toiletries, air fresheners, and clothing.   

Pyongyang is believed to be home to an estimated 1,000 dollar millionaires, the radio station said. 

I am a bit skeptical about this story.  Given the DPRK’s monetary history, I understand the need of North Koreans to “get out of cash,” but the number of individuals hoarding South Korean goods has to be small.  Jewelry aside, manufactured goods are not a reliable store of value.  They are hard to hide, difficult to transport, they break down, and require electricity.  As for televisions, South Korean TVs operate on NTSC (like the US) and North Korea uses PAL (presumably the “South Korean” TVs are made for the Chinese market and operate on PAL–thanks Gag).  

Why not stick with Yuan?

Also, Japanese goods have been considered the paragon of quality in the DPRK for decades.  Is it realistic to assume that attitudes towards South Korean goods have changed so much so quickly? 

UPDATE: A strong counterpoint to my intuition comes from Dr. Lankov.  He notes:

Well, in the USSR of my youth many people did just that. They hoarded industrial goods, in spite of all above mentioned shortcomings. TV sets, VCRs, furniture, glassware, even books. There was a major difference, though: in the the USSR it was strictly illegal and, indeed, risky, to be possession of foreign currency.

Also see this IFES report. 

Read the full story here:
Wealthy N.Koreans Hoard S.Korean Goods
Choson Ilbo
3/11/2010

Choson Ilbo
3/10/2010

Curbing North Korea’s illicit arms trade is difficult since the renegade country launders containers carrying weapons three or four times, a defector who was in charge of illicit arms deals told the Chosun Ilbo on Monday.

The defector revealed that a factory in Jagang Province, which is believed to produce tractors, is the center of the communist country’s weapons production, including chemical warheads. The defector, who is under police protection, did not want his identity to be revealed fearing reprisal attacks against family members still in the North.

Foreign Forwarders Transport Weapons
Five departments of the North Korean government are involved in arms exports: the military arms production wing of the Workers’ Party, the Second Academy of Natural Sciences, the Surveillance Division of the People’s Armed Forces, Operational Department of the Workers’ Party and the Second Economic Committee. He said the Economic Committee, which is directly under the control of the powerful National Defense Commission, is the biggest.

The military arms production wing procures materials for the Yongbyon nuclear plant and North Korea’s nuclear weapons program. “The General Bureau of Atomic Energy only produces yellow cake [the seed material for higher-grade nuclear enrichment], while the arms production wing is in charge of the Yongbyon facility,” the defector said. The Second Academy of Natural Sciences exports missiles and also provides after-sales service for exported products by upgrading performance and exchanging components.

“The main client is the research center of Iran’s Revolutionary Guard, while experiments are conducted in unison,” he said. Iran successfully test-fired a rocket on Feb. 3 which is believed to have been powered by the same engine as North Korean Rodong missiles.

But international sanctions against North Korea make it difficult to export weapons by conventional means. “This is where the Surveillance Division of the People’s Armed Forces comes in,” the defector said. Its “traders,” who studied at Pyongyang University of Foreign Studies, are fluent in English and Chinese and sign deals with “forwarders” from other countries. Through this process, North Korea sends containers across the Apnok (or Yalu) River to China one third or half filled with weapons. “The forwarder who received this cargo enters a port in a third country, where the containers are filled with freight unrelated to weapons and the paperwork is completed,” he said.

These “laundered” containers are laundered again in Hong Kong, Singapore or other ports. “The containers are mixed with other cargo in those transit points. They are searched, but not thoroughly,” the defector added. “Even if customs or other officials roll their sleeves up and search for weapons, how can they possibly find the arms among the mountains of other containers headed to other countries?”

‘Tractor Factory’ Is Weapons Production Base
North Korea’s main weapons production base is Kanggye General Tractor Plant No. 26. Before the Korean War, the plant was based in Pyongyang and made Soviet-designed PPSh 41 submachine guns but has since been relocated. Over 10,000 workers there manufacture ammunition and even chemical weapons. The People’s Armed Forces is in charge of chemical weapons production. “The Bio-chemical research center affiliated with the military is located next to the Kanggye plant,” the defector said. “The toxic gases produced at the research center are loaded onto warheads manufactured at the plant.”

North Korean leader Kim Jong-il makes a point of visiting the factory two to three times a year. He last paid a visit on Dec. 9, 2009.

AK-47 Rifles and Ammunition Are Top Sellers
“Small arms ammunition are hot export items and the Second Economic Committee even built a factory in Ethiopia,” the defector said. The rugged AK-47s, which can operate flawlessly even in the sand-filled battlefields of the Middle East, are extremely popular, he said.

Anti-tank missiles are more complicated to manufacture, so the blueprints are in Russia, while North Korean factories are merely subcontractors. North Korean arms are believed to be exported to Bangladesh, Indonesia, Pakistan and the Philippines. “North Korean weapons with engines [such as tanks] are extremely poor quality, but those carrying warheads are not bad,” the defector said. Around 20 percent of the parts used to make export versions of missiles are imported. But missiles for domestic use are made using mostly North Korean-made parts, so there is a difference in performance. “North Korea tried to import Harpoon anti-ship missiles from Taiwan,” he added. “This probably has something to do with the South Korean Navy’s use of the Harpoon missiles.”

Dear Choson Ilbo: We have very good satellite imagery of Kanggye. Please tell us where the Kanggye General Tractor Plant is!  Here are three guesses as to where the plant is: guess 1, guess 2, guess 3.  Kim Jong Il has a villa in Kanggye here.  Here is his private train station near Kanggye.