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DPRK small-scale private commerce and industry growing

Friday, July 4th, 2008

Institute for far East Studies (IFES)
NK Brief No. 08-7-4-1
7/4/2008

It appears that the number of people involved in handmade goods manufacturing, trading, and other small-scale, individual businesses is steadily increasing among North Korean citizens.

According to a source inside North Korea on June 30, ever since North Korean authorities announced the ‘Market Stimulation Measure’ in March 2003, the number of small-scale private businesses employing between 1~8 people has continued to grow as citizens in the North have taken to markets aggressively in order to earn money,

As the North’s economic woes continue to stretch over time and the government is unable to provide basic living necessities, the people are looking for other ways to support themselves.

In March of 2003, North Korea expanded farmers’ markets into general markets, allowing not only the sale of agricultural goods, but of manufactured goods as well. At the same time, the state introduced ‘market use fees’ for vendors wishing to rent space to hock their wares, thus bringing about a tax-like ‘state payment’.

Small-scale commercial and industrial businesses took on the form of family manufacturing or collaboration between factories, enterprises and engineers working together, but ‘Chinese-model’ small enterprises hiring just one or two workers also appeared.

In-home food preparation or handmade goods manufacturing, restaurants, bus services, repair work and other service-related industries grew. There also appeared examples of those leasing import rights from organizations or enterprises and making a living through trade.

Authorities have given these businesses tacit permission to operate, recognizing their role in increasing public revenue and supplying the people with daily necessities, but at the same time, they have laid down some restrictions, criticizing those “bitten by the capitalist bug, working only to make money for themselves.”

Small-scale private commerce and industry has the positive benefit of expanding the provision of daily necessities and absorbing unemployed labor in the North, but on the other hand, anti-socialist side effects such as the increasing gap between the rich and the poor and mammonism are also on the rise.

Posted in Economic reform, Fiscal & monetary policy, General markets (FMR: Farmers Market), Labor conditions/wages, Light Industry, Manufacturing, Market Stimulation Measure (March 2003), Price liberalization, Private property | Comments Closed

Interview with president of Nosotek, JV company in DPRK

Tuesday, July 1st, 2008

Via Interview Blog:

UPDATE: Here is an interview with Jürgen Bein about the Kaesong Industrial Zone (In German)

Klaus-Martin Meyer: Mr. Eloesser, you recently became the President of Nosotek Joint Venture Company in Pyongyang, the capital of North Korea. In which the field of business is Nosotek operating?

Volker Eloesser: We do general IT outsourcing. This includes data base applications, 3D technology development as well a games production. Nosotek’s customers come from all over the world and some of our products are even used in the US.

Klaus-Martin Meyer: According to your CV, before you were heading to North Korea, you’ve been the general manager of Elocom, a subsidiary of a German Joint Venture between News Corporation (NWS.A) and Verisign (VRSN). It’s quite unusual for a high-ranking manager of a US based public company to move to North Korea.

Volker Eloesser: That’s true. But I don’t see my job as a political mission. At Elocom, I was managing a company producing mobile phone software technology. Neither my old job nor my new one is a political one.

Klaus-Martin Meyer: What’s your opinion about the demolition of the nuclear cooling tower in Yongbyon and the announcement of the US President George W. Bush to remove the country from the terrorism blacklist?

Volker Eloesser: This was great news. I think that both parties, the Korean and US government, took wise decisions which hopefully help giving peace a chance through diplomacy. For our business, lifting the sanctions will have a very positive impact, as well as for the People in the DPRK. North Korean Companies, domestic and foreign-invested, were suffering a lot under the sanctions. Foreign trade was very difficult and many potential customers feared to get trouble when making business with the DPRK.

Klaus-Martin Meyer: When did you first get interested into the DPRK? Did you already do active business with North Koreans before?

Volker Eloesser: Of course I did. In the beginning of 2005, I held lectures at the Pyongyang Business School. The Korean participants of my lectures were great people really interested into international business.

Klaus-Martin Meyer: Who are the shareholders of Nosotek? Is it a state-run company?

Volker Eloesser: Nosotek is a joint-venture between a European owned private holding company and the General Federation of Science and Technology of DPRK, a non-government organization.

Klaus-Martin Meyer: Along being the president of Nosotek, you are Chairman of the Supervisory Board of Next Generation Entertainment N.V. (NGE), a Dutch public company. Are there any links between NGE and North Korea?

Volker Eloesser: NGE’s management is highly interested in investing into the DPRK software industry. The CEO Dr. Stefan Heinemann believes that the DPRK will become a very important sourcing market in the near future, which has many advantages over China and India. Having this in mind, it makes a lot of sense for NGE to have a board member with experience in dealing with North Koreans.

Klaus-Martin Meyer: How would you describe the difference of outsourcing software in the DPRK compared to China or India?

Volker Eloesser: The DPRK’s software industry is already very well developed, but only for the demands of the domestic market. Although the skill level of the engineers is as high as the skill level in China or India, most DPRK software companies never made successful international business in large scale. The Korean engineers usually have no experience with western culture, habits and taste. But of course you’ll experience the same, when working with some small Indian or Chinese companies. One major advantage of the Korean engineers is that they don’t move to a new job frequently, like the Chinese. In this matter, you can compare the Koreans with Japanese staff, who usually never leave the company to move to another job. The result is obvious: the experience and knowledge stays within the company and there is no risk of IP leak.

Klaus-Martin Meyer: Are you personally living in North Korea or can you do your job remotely?

Volker Eloesser: It’s definitely required to have western management in a company dealing with western customers. Every attempt of people trying to do this remotely has failed. I’m planning to live in Pyongyang most of the year. I have a nice apartment in the city centre.

Klaus-Martin Meyer: Living in Pyongyang sounds hard. How are the living conditions for foreigners in Pyongyang? What about your family?

Volker Eloesser: Well, it’s not as hard as western readers may think. Of course the hardest thing is to live separated from my wife, but she promised to visit me frequently. Generally, the living conditions for westerners in Pyongyang are good: The air is totally clean, there is no risk of becoming a crime victim, there is a lot of green in the city and the Korean people are generally very friendly .

Klaus-Martin Meyer: Usually, western media has almost no idea about the real working and living conditions of the people in North Korea. Can you tell us something about the working conditions of your local staff?

Volker Eloesser: One of my goals is to achieve working conditions according to German standard. The staff is equipped with the latest computer hardware and enjoys a lot of incentives from the company to make their live comfortable. For example, the company is providing free lunch for the whole staff, which is delicious and nutritious. I myself have lunch together with my engineers every day, and I like it very much. Additionally to the large number of public holidays, the company even sponsors a one-week holiday trip. This is the way we appreciate the performance on the job.

Klaus-Martin Meyer: What are the most difficult obstacles, western managers are facing in the DPRK? Do you stuffer from political pressure?

Volker Eloesser: I’ve not yet experienced any political pressure, but of course you need to get used to the local security regulations and bureaucracy. When you behave politely, don’t do derogative statements about politics and respect the Korean culture, you won’t face any serious problems. The most difficult obstacle is the absence of international experience of the software engineers, combined with the cultural differences typical to Asian countries.

Klaus-Martin Meyer: How many European businesspeople like you have discovered the DPRK as tomorrow’s sourcing market?

Volker Eloesser: Actually, not many so far. The European community in Pyongyang is very small. After a few weeks, you know every foreigner. Most Europeans who do business in the DPRK are organized in the European Business Association. But I feel that the community is growing since business managers are more and more recognising that doing business in and with the DPRK is of course working with a frontier framework but also with a great potential of highly-skilled people with an impressive work ethic and an attractive cost-performance ratio – and also an emerging domestic market.

Klaus-Martin Meyer: What drives you personally to go there and build up an internationally operating company?

Volker Eloesser: Leading a foreign invested company in North Korea is a great challenge for me. During my lectures at the Pyongyang Business School, I realized that the skilled North Korean IT engineers have a huge potential for successful software development. This potential is almost unrecognized in the world and therefore unused. I like to be the pioneer who builds up this new outsourcing destination. I believe that economic progress will lead to a general improvement of the people’s living conditions and IT business is a key to economic progress. If you ask me, I would tell you that my work will have a greater impact on improving the North Korean living conditions then just sending bags of rice.

Klaus-Martin Meyer: Do you experience economic progress or political changes in North Korea?

Volker Eloesser: The question about political changes should better be answered by the politicians. But indeed you can see economic progress: Compared to my first visit in 2005, there are now much more cars in the street and the number of foreign investment seem to have significantly grown. A group from Hong Kong is building a large shopping and business area along the Taedonggang river and Orascom from Egypt is continuing the Ryugyong Hotel construction as well as investing into a modern mobile phone network. And recently the German-based Prettl Group (Automotive industry) announced that it will be the first foreign non-Korean company to build a factory in Kaesong.

Klaus-Martin Meyer: Nosotek is located in Pyongyang. Do you think things could be easier for companies operating out of the Kaesong free trade zone?

Volker Eloesser: I’ve never been in Kaesong myself. From what I’ve heard, the free trade zone, which has been build with ROK investment, is a modern factory area, mostly targeted to low-cost production of shoes or textile. I don’t know of any software development in Kaesong. Pyongyang, being the economic and cultural centre of the DPRK with large universities, offers a huge number of qualified engineers.

Klaus-Martin Meyer: What are your plans for Nosotek’s future? How do you see your company in five years? What is your strategy?

Volker Eloesser: My plan for Nosotek is a constant growth. First of course, everybody in Nosotek has to understand the demands of our customers; not only the technical demands but also the usual communication style and habits of the western world. At the moment, we’re only fifty people and I’m starting to build up a powerful middle management, who knows their customer’s expectations. After this has been done, we can begin scaling the business volume.

Klaus-Martin Meyer: Are there other western IT companies having operations in the DPRK?

Volker Eloesser: Nosotek still is the only one. But according to Paul Tjia of GPI Consultancy who organizes business missions to the DPRK, the number of people interested into software development in the DPRK is constantly growing. I hope that Paul will bring more people here to operate software companies. With other Foreigners here, working in the same or similar field of business we together can help strengthening the DPRK to become a better known source for software development. Bangalore is still far, but I’m sure the quality delivered by the Korean IT engineers will be convincing, not only to grow Nosotek, but also to grow the country itself as an outsourcing destination.

Klaus-Martin Meyer: Mr. Eloesser, thank you for the interview.

Posted in Communications, Computing/IT, Economic reform, European Business Association, Foreign direct investment, General Federation of Science and Technology of DPRK, GPI Consultancy, Joint Ventures, Kaesong Industrial Complex (KIC), Labor conditions/wages, Light Industry, Manufacturing, Nosotek, Orascom Telecom Holding, Special Economic Zones (Established before 2013) | 4 Comments »

DPRK economy shrinks for second year: Bank of Korea

Tuesday, June 17th, 2008

North Korea does not publish economic data. The size of North Korea’s economy is estimated by South Korea’s Central Bank (Bank of Korea), the US Central Intelligence Agency (CIA), and other think tanks such as the Sejong Institute (Lee Jong Seok).

According to a recent report by the Bank of Korea, North Korea sufferd its second full year of economic contraction (as defined by GDP), 1.1% in 2006 and 2.3% in 2007. The bank estimates North Korea’s 2007 gross national income (GNI/GNP) at $26.7 billion, per capita GNP at $1,152 (assuming population of 23 million). If you are interested in knowing the difference between GNP and GDP, click here.

Here are some highlights from the report:

Agriculture, forestry & fisheries marked a 9.4% decrease following a 2.6% decrease in 2006

Mining increased 0.4% in 2007, down from 1.9% increase in 2006

Manufacturing increased 0.8%, higher than 0.4% 2006 increase. -1.7% growth in light industry, due to the decrease in food products and beverages. +2.3% growth in heavy industries led by expansion of metal and machinery products.

Electricity, gas & water production increased 4.8%, (+2.7% in 2006), from hydroelectric and steam power generation.

Construction production -1.5%, (-11.5% in 2006), from reduced non-housing construction and civil engineering.

Services +1.7%, (+1.1% in 2006). Hotel, restaurant, transport, post & telecom industry expanded.

Trade volume (goods) fell 1.8% to $2.941 billion, 1/248 South Korea’s. Exports fell 3.0%, imports fell 1.3%.

These estimates are based on trade figures obtained from the Korea International Trade Association, Korea Trade and Investment Promotion Agency, fuel and food aid figures from aid groups such as the International Red Cross and the World Food Program, as well as information provided by frequent visitors.

More information here:
Full report by Bank of Korea and data (recomended)

North Korea’s Economy Shrank in 2007, Second Annual Contraction
Bloomberg
Heejin Koo
6/17/2008

Posted in Agriculture, Agriculture statistics, Bank of Korea, Construction, Copper, Dams/hydro, Demographics, Energy, Forestry, GDP statistics, Hoteling, International trade, Light Industry, Lumber, Manufacturing, Mining/Minerals, Real estate, Restaurants, Statistics, Tourism, Trade Statistics, Transportation | Comments Closed

DPRK promotes multifaceted trade to boost exports

Thursday, March 27th, 2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-3-27-1
3/27/2008

The latest issue of the North Korean publication “Economic Research” (2008, issue no. 1) highlights the need to restructure North Korea’s trade system in order to meet the demands of the capitalist market. The journal quotes Kim Jong Il as saying, “[We] need fresh improvement, in our own manner, of the basic Socialist economy’s trade system of yesterday, meeting the current demands being faced due to the capitalist market.”

Therefore, the journal stresses, “As the socialist market crumbles, and given the demands of the capitalist market as [our] focus shifts to overseas economic relations, what is currently needed for the development of overseas trade is improvement of our own style to the trade system that can ensure large profits.

The journal goes on to recommend that, in order to meet these new demands of the international capitalist market, “the most important thing is improving the import-export system based on the foundation of an self-reliant national economy.” It states that raw materials should not be sold as-is, but rather should be turned into processed goods and then sold, that goods popular on the international market should be manufactured for export, and that niches should be chosen in which North Korean goods can dominate the international market.

However, the journal also says, “If individual offices trade with capitalists outside the scope of government controls, ‘reform’ and ‘opening’ sought by the imperialists would occur, and the nation’s economy could liberalize and capitalize…International trade must take place orderly under the uniform control and guidance of the nation.”

The journal asserts that even though a variety of offices are engaged in trade, they must first receive government permission, follow government guidelines, and operate in a government-created environment. The central government must standardize prices and designs of selected export goods from each trading company.

Posted in Domestic publication, Economic reform, International trade, Light Industry, Manufacturing, Mining/Minerals, Songun | Comments Closed

Taedonggang Brewery…

Monday, March 10th, 2008

Reuters has a write up of my favorite North Korean beverage, Taedonggang Beer:

North Korea’s quest to produce decent beer began in earnest in 2000 when it started talks with Britain’s Ushers brewery about acquiring its Trowbridge, Wiltshire plant that had ceased operations.

The North Koreans took apart the brewery that had been producing country ales for about 180 years, shipped it piece by piece to Pyongyang and reassembled it under the banner of its Taedonggang Beer Factory.

By April 2002, it was up and running. In June 2002, the North’s leader Kim Jong-il, known for his fondness of expensive brandy and wines, went on a brewery tour.

“Watching good quality beer coming out in an uninterrupted flow for a long while, he noted with great pleasure that it has now become possible to supply more fresh beer to people in all seasons,” North Korea’s official KCNA news agency said.

Taedonggang beer, named for a river that runs through Pyongyang, is a full-bodied lager a little on the sweet side, with a slightly bitter aftertaste.

Still not the choice of locals:

Taedonggang is one of several brews in North Korea and it has quickly become the top brand, according to foreigners living in the reclusive country.

Park Myung-jin, of distributor Vintage Korea which used to sell the beer in the South, said the North’s leader Kim wanted a showpiece brewery.

“They used the best quality material without thinking of the production cost,” Park said. He stopped selling the beer in the South in 2007 due largely to a sudden price hike.

The North taps into overseas markets for ingredients, Park said. It has abundant supplies of fresh water because its hobbled factories do not produce enough to cause pollution problems.

Beer is not the drink of choice for most North Koreans, who prefer cheaper rice-based liquor that packs a big punch.

Dont expect to see it in your local pub:

But do not expect to see Taedonggang or any North Korean beer invading overseas markets any time soon.

North Korea may have solved the riddle of making a robust beer but it has not completely solved the problem of bottling it.

The brewery has occasional trouble sealing bottles properly and the glass it uses is fragile.

The transport system in North Korea is also a mess, making it unlikely that the beer can become one of the few legitimate exports from a country shunned by the developed world for its defiant pursuit of nuclear weapons and a human rights record cited by the United States as one of the world’s worst.

The full article can be found here:
North Korean beer: great taste, low proliferation risk
Reuters
Jon Herskovitz
3/9/2008

Posted in Alcohol, Civil society, Light Industry, Manufacturing | 2 Comments »

DPRK holds first extended cabinet meeting of the year

Monday, March 3rd, 2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-3-3-1
3/3/2008

In the latest issue (February 3rd) of the DPRK Cabinet bulletin, “Democratic Chosun”, it was reported that the first extended cabinet meeting of the year opened in the beginning of February, with Premier Kim Young-il presiding. The bulletin stated that the issue of accomplishing this year’s economic plans was discussed.

At the meeting, Vice Premier Kwak Bum-ki stressed that accomplishing this year’s economic goals was “essential for opening the doors to a breakthrough for building an economically strong nation,” and that it was the “fundamental task laid out before the Cabinet.” He went on to reveal the tasks and directives needed to revitalize all realms of socialist construction, which he stated was necessary to create a powerful and prosperous nation by 2012, the centennial anniversary of the birth of the late Kim Il Sung.

In particular, he called for the production of the “lifeline of socialist construction”, and specifically, electricity, coal, metal, and railways, which he referred to as the “four lines for the advance of the people’s economy.”

Accordingly, the goal of carrying out overwhelming repairs to power generation facilities, and at the same time constructing new power plants in order to increase electrical production capabilities by several hundred thousand kilowatts, was proposed.

The meeting also stressed the need for concentrating efforts on geological exploration and exploitation industries in order to reasonably development and use natural resources, for a change in production of goods necessary for daily life, and for a resolution to the people’s ‘eating problem’ alluded to in the recent New Year’s Joint Editorial.

The bulletin also reported that there was discussion on creating a new five-year plan for the development of science and technology, going as far as to say, ”the role of science and technology in the building of an economically powerful nation is decidedly large, and in order to answer the very real calls for development, [the issue of] strengthening international economic projects” was brought up.

Premier Kim Young-il, Vice-Premier Kwak Bum-ki, Chairman Kim Kwang-rin, of the Committee on National Planning, Park Nam-jil, of the Power Supply Industry Bureau, and Kim Yong-sam, from the Railways Bureau, were among cabinet ministers present.

Posted in 2012 Strong and Prosperous Nation (Kangsong Taeguk), Cabinet, Coal, Domestic publication, Electricity, Energy, Light Industry, Manufacturing, Mining/Minerals, Political economy, Railways, Songun | Comments Closed

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

Thursday, February 21st, 2008

At 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 foreigners. Some are imported by the leadership. Others 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

Posted in Alcohol, Economic reform, Foreign direct investment, General markets (FMR: Farmers Market), Light Industry, Manufacturing, Political economy, Price liberalization | 2 Comments »

North Korea Now: Will the Clock Be Turned Back?

Friday, February 15th, 2008

This morning I received an email from a reader at the Brookings Institution who shared an article by one of their visiting fellows. Much of it was about US/DPRK foreign policy, but I thought the following excerpt was interesting from a social change perspective:

On a recent visit to Pyongyang, this author was impressed by the sheer scale of new economic phenomena in DPRK. In terms of variety of goods, activity, and scale, markets in North Korea’s central areas (less in the provinces) remind of Chinese provincial markets. Numerous restaurants serve good—and very cheap, by Western standards—food to customers flocking to them. New “service centers” (eundokwon), combining shops, saunas, and restaurants under one roof, have sprung up and are run by highly placed entities such as Party departments and “offices.” Every branch of the Party, military, and local authorities now operates trading companies. Real business managers have appeared, some engaged not only in the “shuttle” trade with China but in bigger projects (in construction, for example), and some corporations have amassed a considerable volume of business. Judging by the author’s experiences in the 1980s and 1990s, these “new Koreans” are much more realistic and open to contact with outsiders than was the case before. There are changes in the official line as well: North Korean economists explained that now, out of several hundred thousand products manufactured in the country, only several hundred are now centrally planned. For the vast majority of manufactured products, managers of the state-owned enterprises are given a free hand to determine their production targets and to get what they need through the “socialist wholesale market.”

Having witnessed the processes eventually leading to the denunciation of the command economy in the USSR, and the transition to a market-based economy, this author can testify that there are striking resemblances in certain aspects of contemporary daily life in the DPRK to the USSR in the 1970s and 1980s (the Chinese experience in the1980s, with private enterprise officially sanctioned, is less similar). At that time in the Soviet Union, a vast black market of goods and services began to form in major cities. Many of its dealers became (often after a prison term) the leading businessmen of the post-Soviet era.

For example, at that time there was no private property for apartments in Moscow or elsewhere, and no real estate market officially existed. But at the same time almost any Soviet in the course of his life would “change” one apartment for a better one, paying considerable sums of money to the former “owner.” Some shadowy dealers would buy apartments outright, bribing officials to get a “registration” (propiska), and many made a profession of acting as a “go-between.” Similar activities are sprouting like mushrooms around North Korea. A one-room apartment in Pyongyang is said to cost about US$5000, less in local areas. However, real estate in some small cities close to Pyongyang boast the same high prices, as various kinds of dealers and traders, who are not permitted to settle in Pyongyang, buy apartments there. Foreign currency flows freely and, like in the USSR, most things can be obtained for money. A Russian joke said: “if it is illegal, but very much desirable, it is not prohibited.”

The ground for developing market relations is well prepared. The “royal economy” serving the ruling class (Kim Jong-il’s immediate retinue and the top nomenklatura or kanbu), and a large part of the internationalized sector (joint ventures and free economic zones) operate on market principles. The next step, should the country’s leaders admit the need for developing the country and sustaining their power, should be “setting the rules of the game” by providing a legal framework for what already exists. For that, however, external security should be guaranteed to the regime—irreversibly and comprehensively. Only then will the hard-liners, who fear—with good reason—that reforms would invite subversion of the regime, be confident enough for real progress to take place. Nevertheless the words “reform” and “openness” (especially because of their “Chinese connotations”) are unacceptable to Pyongyang, and Kim Jong-il himself stated as much during his talks with Roh Moo-hyun in October 2007. Under the present leadership Pyongyang, any economic reforms would most likely never be called such and would take place in an unpublicized manner without discussion, which is not helpful in terms of public relations with the West and negative international sentiment about the regime.

The full article can be found here:
North Korea Now: Will the Clock Be Turned Back?

Georgy Toloraya, Visiting Fellow, Center for Northeast Asian Policy Studies
2/11/2008

Posted in Black markets, Civil society, Economic reform, Foreign direct investment, Joint Ventures, Light Industry, Manufacturing, Price liberalization, Real estate, Restaurants | Comments Closed

DPRK light industrial production grows with ROK material aid

Wednesday, February 13th, 2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-2-13-1
2/13/2008

As South Korean materials used in light industry make their way to the North, some DPRK factories appear to returning to normal manufacturing operations. A source in North Korea recently reported, “Raw rubber, talcum (used for soap), perfumes, textiles, and other ROK raw materials made their way to a Sinuiju shoe factory and cosmetics factory, and production has returned to normal.”

South Korea is providing raw materials for light industry worth 80 million USD in return for mined goods from the Danchun and Kumduk areas of North Korea. According to the source, “9 containers of soap powder came to the soap department of the Sinuiju cosmetics factory. The factory is in full operation and most workers are reporting for work…Workers are receiving monthly wages and food rations, and [they] almost never come out to the traditional market.”

The workers at the Sinuiju cosmetics factory are mostly women, and up until now there were no materials or power, so there could be no production and business was off. However, since the middle of last November, as materials began to flow in, this factory was identified as a ‘special’ factory, power was turned back on, and the manufactured goods began to roll out. An inside source also reported that the goods have already begun to turn up on Sinuiju markets. “Sneakers began appearing in Sinuiju’s Chaeya and Chinsun Markets; The quality is good, and the residents have received them well … The response seen is that it is thanks to the South Korean shoe materials that the quality is good. Chinese shoes are not able to compete, and are not selling well.”

The source went on to report that the scent of laundry detergent was nice, and that it was only being used to wash undergarments. “Everyone knows that the light industrial raw materials are from South Korea …Everyone already knows that South Korea has flourished, so they publicly praise ROK goods.”

As production normalizes at the Sinuiju shoe factory, cosmetics factory, and other light industrial factories, factory workers are becoming objects of envy. Among residents, some worry about not being able to enter the factories, because in the factory, monthly wages and rations are received, and some products can be stolen and privately sold.

Goods now found in Sinuiju markets include some given to factory workers based on their piece rates, and some that are snuck out and find their way to vendors. However, in this first stage of production normalization, the North is not yet at a level at which large-scale rationing to the people is possible.

Posted in Institute for Far Eastern Studies, International Aid, International trade, Labor conditions/wages, Light Industry, Manufacturing, Mining/Minerals | 1 Comment »

Kim Jong il site visits indicate DPRK’s focus on economy

Saturday, February 2nd, 2008

Instutute for Far Eastern Studies (IFES)
NK Brief No. 08-1-24-1
1/24/2008

North Korean leader Kim Jong Il has started the new year by visiting a series of facilities and locations important to the economy in order to stimulate ‘Economic Revival’. DPRK media outlets reported on January 21 that Kim had examined the 18th national program performance and exhibition which opened last year, and that on the 6th, he visited the Ryesung Power Plant in North Hwanghae Province and dispensed on-location directives.

In North Korea, Kim’s new year’s traveling is indicative of the country’s national goals for the year, and Kim’s trip to economic facilities appears to indicate that DPRK authorities are focusing on rebuilding the economy this year.

On January 9, the Chosun Sinbo, a publication of the General Association of Korean Residents of Japan, reported, “In the changing face of the Northeast Asian political atmosphere emerging as the 6-Party agreement is implemented, [we] are preparing an advantageous atmosphere for the revival of the North Korean economy,” and called for “more active promotion of economic cooperation and exchange with each country in the world.” The article stressed promoting ‘21st century rehabilitation by one’s own effort’ by acquiring modern science and technology appropriate for the country.

Last year saw the beginning of improvement in U.S.-DPRK relations and resolution of nuclear issues, and the national strategy for this year seems to be economic expansion based on these developments. In particular, the symbolic significance of Kim Jong Il’s personal visits to two places of economic interest goes to show that North Korea is on a path intended for economic growth. In North Korea, on-location guidance by Kim Jong Il indicates national objectives and serves to focus national capabilities on that location.

According to North Korea’s New Year’s Joint Editorial, “The role of science and technology in the construction of an economically powerful nation must be decidedly elevated,” and went on to stress that, in line with the demands of the information industrial age, a revolution in education is necessary and a competent labor force that can participate in the creation of a strong and prosperous nation must be greatly promoted.

If Kim Jong Il’s inspection of the power plant is an indication of support for the construction of infrastructure and other electrical facilities necessary for economic development, the inspection program indicates what industrial sector the North will focus its energies on in the future. Through increased production in the light industrial and agricultural sectors, North Korea is expected to focus on improving the lives of the people first, and in the future, focus on development of the IT sector.

Posted in Chongryun, Dams/hydro, Electricity, Energy, Light Industry, Manufacturing, Political economy | Comments Closed

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