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On tobacco and hard currency

Monday, March 8th, 2010

The Financial Times published a thorough article on the DPRKs eforts to raise hard currency through tobacco re-exports:

North Korean and other Asian trading entities started re-exporting State Express 555 cigarettes, manufactured by British American Tobacco, in February last year, just months before North Korea’s second nuclear test in four years prompted the United Nations to impose tougher sanctions on Pyongyang.

BAT sold the so-called “NK 555s”, made and packaged in Singapore for the North Korean market, to a Singaporean distributor for shipment to Nampo, a port near Pyongyang.

However, at least 15,000 cases worth $6.3m (€4.6m, £4.2m) rebounded out of Nampo to ports in Vietnam and the Philippines, according to documents seen by the Financial Times, to go to other markets where they commanded a higher price.

While the UN banned luxury goods exports to North Korea, member nations have been allowed to compile their own sanctions lists, which critics say created loopholes.

The US, Japan, Australia and Canada banned a broad range of tobacco products. Meanwhile, the European Union and Singapore sanctioned only cigars, which allowed BAT to continue exporting NK 555 cigarettes to North Korea. BAT said it halted exports of the cigarettes from Singapore to North Korea after discovering a diverted cargo of NK 555s in August.

International tobacco companies frown on “grey market” or “parallel” exports of their products to markets for which they were not intended. But national customs authorities target counterfeits rather than so-called “diverted real product”.

…

BAT has maintained some business ties to the country. It still supplies its former Pyongyang joint venture, from which it divested in 2007, with materials to make and sell cheaper Craven A cigarettes on the domestic market.

BAT says 175m NK 555s were exported to North Korea in 2008. They were made and packaged in Singapore which, like the EU, banned exports of cigars but not cigarettes.

The London-based company sold the NK 555s to SUTL Group, a family-controlled distributor in Singapore, for onward shipment to the North Korean port of Nampo.

“When we became aware of the diversion, we immediately launched an investigation,” Pat Heneghan, global head of BAT’s anti-illicit trade division, told the FT. “We certainly didn’t like what we found.”

While there was no evidence of any involvement by SUTL in the diversion, Mr Heneghan said BAT still had “a very hard discussion with the distributor”. SUTL declined to comment.

There is no evidence that the re-export of NK 555s by a number of unidentifiable North Korean entities and other small trading companies across Asia was illegal.

While tobacco companies consider the re-routing of legitimate cigarettes from their intended market as “illicit”, they are not necessarily “illegal” in the eyes of customs authorities focused on counterfeits and smuggling.

“In August last year, BAT discovered a diverted NK 555 shipment in Singapore, which we assumed could be for transhipment to other markets in Asia,” said a BAT spokeswoman. “But we were unable to inspect the shipment as we could not demonstrate any breach of Singapore law to the authorities.”

On April 10 2009, the NK 555 re-exports were discussed in an e-mail sent by a Singapore-based cigarette trader to a potential buyer in Manila.

“We have to confirm by next week,” wrote Bert Lee of Compass Inc. “Empty containers will have to start moving into Nampo . . . So kindly speak and plan with your buyer and let me know if you want to take up this new NK 555 Blue.”

Compass began to sell cases of NK 555 to a Hong Kong-based trading company in early 2009. E-mails and shipping documents show the cigarettes were first diverted to Dalian, a Chinese port, and then shipped on to Singapore before finally landing in Haiphong in Vietnam.

While the trail ran cold in Haiphong, people tracking the shipment suspected its ultimate destination was China.

“They sell it to someone who can handle it for the China market,” said one person involved in the trade, who asked not to be identified.

Invoices sent from Compass to its Hong Kong buyer in February 2009 do not reveal the North Korean source of the NK 555s. But Mr Lee left no doubt about the cigarettes’ provenance.

“Stocks are now in NK and sample already send [sic] out to us,” he wrote to his potential buyer in Manila. “I hope we can work on this New Blue [555] and controlling the market and stocks as soon as possible.” Mr Lee did not reply to phone calls, e-mails and faxes from the FT.

“As a trader, we just get the product and buy and sell,” said one Compass executive who declined to identify himself or comment on the NK 555 shipments when contacted by telephone. “Where it goes, who knows?”

Read previous tobacco posts here. Read previous BAT posts here.

To date I have been unsuccessful in locating the BAT factory in the DPRK. If any readers have knowledge of its whereabouts, I would appreciate it.

Read the full article here:
N Korea draws on tobacco for cash
Financial Times
Tom Mitchell, Pan Kwan Yuk
3/8/2010

Posted in British American Tobacco (BAT), International trade, Tobacco | Comments Closed

DPRK reopens markets, authorizes food sales

Thursday, February 25th, 2010

Institute for Far Eastern Studies
NK Brief No. 10-2-24-1
2/24/00

Suffering from severe food shortages, North Korean authorities ordered that markets be opened unconditionally, and that there be absolutely no crack-down on the sale of foodstuffs within the markets. This is according to a report issued on February 18 by the North Korean human rights organization ‘Good Friends’.

Good Friends’ newsletter revealed, “After examining a report on food shortages and the conditions of residents in each region throughout the country by the Office of Economic Policy Review, the Central Committee of the Korean Workers’ Party issued an ‘Order for Absolutely No Regulation Regarding Foodstuffs’ to each law enforcement office.” The order stated that until central distribution is running smoothly, all markets are to be reopened as they were prior to recent government crack-downs, and that under no circumstances were authorities to try to regulate food sales.

Furthermore, it reported that “the People’s Security Bureau also received the Central Committee’s order, and passed on a special instruction to each regional security office ordering agents not to crack down on markets for anything other than illegal goods, and not to regulate food sales, in particular.” Local authorities were also ordered not to engage in altercations with market traders and not to intervene or interfere in fights between traders working within the markets.

According to Good Friends, “Central Party authorities set the price of one kilogram of rice at 24~25 Won, corn at 9 Won/Kg, and corn noodles at 10 Won in an attempt to stabilize the daily lives of people, but the lack of central distribution made the attempt meaningless.”

A North Korean public health official relayed to Good Friends that a report released by central authorities on January 22 stated that there were more than 47 thousand cases of tuberculosis in the North, but that more than half were unable to receive treatment in a hospital, and that “the rise in the number of deaths due to starvation among the most indigent was due to TB patients being unable to eat and subsequently dying after catching a cold or the flu.”

In mid-January, Kim Jong Il called a meeting of Party administrative director (and brother-in-law) Jang Sung-taek and other high-level authorities in order to ease the side-effects of last year’s currency reform. A North Korean source relayed to Daily NK on February 17 that at the meeting, it had been decided that authorities would issue emergency rations to residents facing the threat of starvation.

According to this order, the Office of Food Procurement has been tasked with distribution of the emergency food; neighborhood units receive 5 kg of food daily, while offices receive between 5~15 kg, depending on the number of employees. Neighborhood unit directors or factory supervisors are responsible for assessing the food needs of their neighbors or employees, and prioritize food distribution to those households at risk of starvation.

Until the end of January, currency reform measures that banned the sale of food and drove prices up drove a significant number of households to starvation. However, since the emergency rations measure began to be enforced on February 1, there have been no reports of large-scale famine.

Posted in Agriculture, Food, Forestry, General markets (FMR: Farmers Market), Good Friends | Comments Closed

’38 North’ featuring Bradley Babson

Tuesday, February 23rd, 2010

According to the email from SAIS:

Attached please find the latest bulletin from “38 NORTH,” a web-based initiative sponsored by the U.S.-Korea Institute at SAIS. The goal of “38 NORTH” is to harness the experience of long-time observers of North Korea and others who have dealt directly with Pyongyang in producing quality analysis of events north of the 38th parallel. This analysis, written by Bradley O. Babson, former World Bank official and Chair of USKI’s DPRK Economic Forum, looks at recent developments inside North Korea from an economist’s perspective.

Too often, the media and the expert community jump to premature conclusions about what is going on inside North Korea. In the coming weeks and months, “38 NORTH” plans to publish a series of articles looking at these same developments in an effort to help us all get a better fix on the meaning of these events and their implications for the Korean peninsula, the region and the international community. These articles will be written by experts with different perspectives.

We are looking forward to the scheduled launch of the “38 NORTH” website on April 1, 2010. In the meantime, questions and comments regarding this publication should be directed to: [email protected].

Here is Babson’s article (PDF)

Posted in John's Hopkins SAIS | 1 Comment »

Teaching English in Pyongyang

Sunday, February 14th, 2010

The British Council arranges for English teaching opportunities in the DPRK (see here, here, and here). Chris Lawrence has been teaching at Kim Il Sung University and his experiences there were recently covered by the BBC.

According to the article:

It was a freezing cold February morning and Chris’s new classroom at the elite Kim Il-sung University in the capital Pyongyang wasn’t much warmer than the streets outside.

These days even the children of the party faithful can’t escape some of the hardships of everyday life in North Korea.

“The main problem is a lack of heating,” he said.

“Most of us in here are wearing our outdoor clothes as we work.”

Chris is one of a small team of English teachers forming a joint project between the British Council and the Government in Pyongyang.

In a sign that it may one day open up to the Western world, North Korea has gradually shifted a lot of its language training away from Chinese and Russian and towards English.

This is Chris’s first day in the job but his new class has already made an impact.

“I’m quite impressed by the level of English in this particular group” he told me.

“I expect the students will go on to occupy some quite important positions within Korean society.”

I asked one student what he hoped to do with his English.

“I hope to achieve speaking English so that I can go abroad and do some business because I want to be a businessman,” he said.

Another said he was going to be a diplomat.

They seemed, at the moment anyway, quite willing to engage with the outside world.

I asked one student who his favourite English authors were.

He hesitated and then said “Shakespeare… and Dickens”.

I asked him if he had read anyone more recent. There was a long embarrassed pause and then he replied: “Um… Jane Eyre… or Hamlet…”

The government wasn’t only keeping a close eye on their reading list.

Everything the students said to me was being listened to by government officials who were there the entire time I was in the country, travelling on a journalist’s visa.

But despite their presence, none of the students felt the need to include in their answers to me the usual rhetoric of “studying for the glory of the party and the dear and great leaders.”

They were quite happy to talk about what they wanted to achieve in life as individuals.

It was in marked contrast to their faculty head who went into a long monologue about the virtues of the “dear leader” President Kim Jong-il as soon as I switched on my microphone.

Heated debate

Across town at the nearby Pyongyang University for Foreign Studies, the staff were much more progressive.

They told me they were very pleased to have someone from the BBC because “we record the BBC News everyday to help the students improve their language skills”.

They played me some of their archive including news bulletins from the World Service that were almost a year old, so I knew they hadn’t been recorded just for my benefit.

I found the final year class next door having a heated debate in very good English about whether it was fair to keep animals in zoos.

The students were sophisticated, knowledgeable and engaging.

They quizzed me about the on-going Iraq inquiry in Britain and then 21-year-old Ri Ji-hye asked me if she could be frank.

“It’s so good that we can listen to [the] BBC,” she said.

“It helps us a lot learning English. I so much want my country to be one of those leading in the economy.”

“We’re already a leading nation in politics and other stuff. Well, it’s no offence but I want to learn English so that the other people get to learn [about] Korea.”

She smiled and said “Look at our faces – are we depressed, are we unhappy, are we hungry? No.”

That was certainly true of Ji-hye and her classmates.

But one of the challenges for her generation will not just be opening up to the rest of the world but opening their eyes to the world just beyond their city limits.

The British Ambassador to Pyongyang, Peter Hughes, is one of those who believes the country will have to wait for another generation before there’s any prospect of real change.

And he says few of people in the capital have any idea what life is like for the majority of North Koreans living beyond Pyongyang.

“I think it’s important to remember that Pyongyang is totally different from anything that’s outside of the city.”

“Only certain people can live here and one of the punishments for doing something wrong is actually to be banished outside of the city.”

“If you go out to the regional centres there is very little out there. The cities are in a bad state of repair. There are a large factories that are standing empty.”

Proud and patriotic

Back in the classroom at the Foreign Studies institute, another British Council teacher was showing North Korea’s “Generation next” how to run a brand campaign for Harley-Davidson, while on the streets outside people often stood more than a 100-strong waiting for a bus.

Pyongyang may be the country’s showcase city but even here it’s pretty obvious that the economy isn’t working.

Like their parents, the young North Koreans I met are proud and patriotic.

They have high hopes for their country even if they don’t yet understand just how far they’ve fallen behind their neighbour China.

But at least they may now be starting to learn enough about the real world to make sure they don’t repeat the same disastrous mistakes.

Read the full article here:
Meeting North Korea’s ‘Generation next’
BBC
Paul Danahar
2/13/2010

Posted in British Council, Education, United Kingdom | 2 Comments »

North Korea’s Failed Currency Reform

Sunday, February 7th, 2010

Marcus Noland wrote an op-ed for the BBC which is posted on the Peterson Institute web page. There are some differences in the two (the BBC piece is shorter), so you can read whichever you prefer. Below, however, I have posted the graphs from the Peterson Institute web page with some commentary:

This chart indicates the market for rice was surprisingly efficient before the currency conversion. Over a two year window, the observed price seems remarkably stable (although the scale of the graph makes it hard to see the the actual level of price volatility). Still, it seems fair to say that North Korean rice producers, vendors, and smugglers are quick to spot and eliminate regional price differentials through arbitrage. The supply of rice must also be highly highly elastic. If the North Korean economy was experiencing inflationary pressures in this time, productivity gains and competition would have to have kept the nominal price essentially flat and caused the real price of rice to fall!

The price of corn is somewhat more volatile and I would be interested in hearing theories as to why this is.

This chart is surprising as well. We see a highly stable US Dollar/DPRK won black market exchange rate (though again, the scale of the graph makes it difficult to determine just how stable). Although the DPRK has not published its monetary policy goals (as far as I am aware), I think it is fair to say that the North Koreans practice exchange rate targeting. Most likely the target is not the US dollar, but the Chinese yuan–which trades at a nearly constant level with the US dollar. Since China is the DPRK’s largest trading partner, it would make sense that the authorities would aim for exchange rate stability. This would suggest, however, that the DPRK’s monetary authorities are well aware of the black market value of their currency and have the tools to affect the exchange rate (i.e. lots of RMB reserves to sell on the black market). I am not sure how plausible this is, but I am not sure how else we can explain this level of exchange rate stability.

Posted in Agriculture, Agriculture statistics, Fiscal & monetary policy, Food, Peterson Institute | 5 Comments »

DPRK launches all-out offensive to meet 2010 economic goals

Wednesday, February 3rd, 2010

Institute for Far Eastern Studies (IFES)
NK Brief No.10-02-03-1
2/3/2010

In order to meet this year’s economic goals, North Korean authorities are calling on the people to launch an “all-out offensive”. Day after day, North Korea media outlets are calling for “continuing reform” and “continuing improvements,” even introducing a new motivational song titled, “It’s a war of attack.”

The slogan “all-out offensive” is designed to encourage the people of North Korea to pour all efforts into attaining the best results in each area of the economy. It is not uncommon for the North to use military terms such as this to motivate its citizens for non-military mobilization drives.

According to the (North) Korean Central News Agency (KCNA), the front page of the January 29 issue of the Rodong Sinmun carried an editorial titled, “Raise the fighting spirit of 10 million soldiers, and advance the all-out fighting spirit of this year,” while the second page of the same paper carried a political commentary titled, “Let’s practically demonstrate.”

The editorial called on citizens of the North to work toward improving the standard of living and improving the lives of the people, and stressed, “The on-going ideological campaign is an all-out offensive for remarkably increasing the speed of the advance for effecting a great surge with the might of the perfect unity of the leader and all the service personnel and people and a charge for giving fullest play to their mental power so that events adding luster to the era of Songun may take place one after another,” and, “The on-going general offensive is sure to triumph when all the people live and struggle as the brave, staunch and devoted vanguard in the advance for effecting a great surge.” On January 20 and 22, the same paper had run similar articles, calling for the “spirit of victors” and “marching forward as quickly as possible.”

That North Korean authorities have gone so far as to launch the song “It’s a war of attack” gives the impression that there is an air of urgency surrounding these ongoing efforts to mobilize the people. Also reflecting this urgency is the fact that this year, Kim Jong Il has carried out more public activities than during January 2009. As of January 26, Kim Jong Il had made 14 public appearances. This was 56% more than the first month of last year, during which Kim had made the most visits since launching the 1st Kim Jong Il regime in 1998.

Of those 14 appearances, 7 were on-site inspections of enterprises and other economic sites, while only 6 visits were military-related. The remaining visit was to the central court; There were no meetings with foreign dignitaries or other foreign diplomacy-related activities. One military-related visit of interest was to a self-sufficient pig farm run by the army. January’s visit was Kim’s third to the farm, where he advised managers to “raise more pigs and provide more pork and pork products to the soldiers,” an indirect reference to the seriousness of food shortages among the North’s military.

Posted in Food, Institute for Far Eastern Studies, Political economy | Comments Closed

Koryolink reaches 100,000 subscribers

Wednesday, February 3rd, 2010

According to the Financial Times:

Orascom Telecom, the Egypt-based mobile network operator, says its subsidiary in North Korea, Koryolink, has acquired 100,000 subscribers in its first year and expects to add millions more in the next five years.

The expansion plans come as the isolated country of 24m, which says it wants to be considered a “mighty and prosperous nation” by 2012, steps up efforts to attract foreign investment.

Pyongyang’s economic ambitions come in the face of tough international sanctions on its nuclear arms programme.

“We see that there is a very big plan for an economic boom,” said Khaled Bichara, chief executive of Orascom. “They are really looking to have, by 2012, a much stronger economy. We believe that mobiles and eventually international communication will definitely be part of this.”

Koryolink, a pre-pay system, has been available in Pyongyang and Nampo, the capital’s port, since December 2008. To help expand the network from there, Mr Bichara said North Korea was laying fibre-optic cables in the provinces.

Orascom was installing its most technologically advanced 3G network in North Korea, he said. The 2010 target for user numbers was ambitious but Mr Bichara declined to put a figure on it.

“I think if we achieve the target of this year, that will be a big milestone,” he said. “The number will be big enough to make Koryolink look like a significant company for us because the revenues per customer are interesting and we believe that this business will have customers in the millions within the next four or five years.”

Mr Bichara said the subscription figures showed that mobile phones were not limited to elite members of the military and communist party, as many observers had speculated.

However, the handset price of €140 ($195) put a mobile phone out of most people’s grasp.

So far, Koryolink offers only a basic voice and text messaging service. International calls and roaming services are not provided but Mr Bichara said starting them would be simple given the sophistication of the network being installed.

Koryolink is a joint venture in which Orascom has a 75 per cent stake. The rest is owned by Korea Post & Telecommunications Corp, the state fixed-line provider.

Thanks to a reader for sending this to me.

Read the full article here:
N Korea operator looks to millions of 3G users
Financial Times
Christian Oliver and Heba Saleh
2/3/2010

Posted in Cell phones, Communications, Ministry of Post and Telecommunications, Orascom Telecom Holding, Telephones | Comments Closed

DPRK currency reform: rice and dollars

Sunday, January 24th, 2010

(H/T Josh) The price of rice has reportedly skyrocketed since the “anti-inflation” currency reforms. According to Good Freinds:

The “inflation fighting” reforms have also caused a devaluation of the new won realtive to foreign currencies:

You can read the full Good Friends report here.

The Daily NK keeps a running graph of price and exchange rate information. See it here.

As with all hyperinflation economies, North Koreans are reportedly turning to barter. According to the AFP:

Seoul-based Internet newspaper DailyNK also reported last week that bartering has made a comeback.

“For now, state-designated prices are still not public, so people think that selling goods for cash now would mean making a loss,” it quoted a defector who talked to his family in the North as saying.

“Therefore, bartering has become the main method of trading for the people.”

The defector said the barter value of products is decided according to their value in old money, with trade carried out privately to avoid detection.

Before the redenomination, one fish was worth 1,500 won and a kilogram of corn was 900 won, so people barter one fish for a little less than two kilograms of corn, DailyNK said.

Posted in Fiscal & monetary policy, Food, General markets (FMR: Farmers Market), Good Friends | Comments Closed

GPI 2010 business delegations to DPRK

Wednesday, January 20th, 2010

From GPI:

In the current financial and economic situation, companies face many challenges. They must cut costs, develop new products and find new markets. In these fields, North-Korea might be an interesting option. Since a few years, it is opening its doors to foreign enterprises. The labor costs are the lowest of Asia, and its skilled labor is of a high quality. It established free trade zones to attract foreign investors and there are several sectors, including textile industry, shipbuilding, agro business, logistics, mining and Information Technology that can be considered for trade and investment.

European Business Mission (May 2010) & Pyongyang Spring International Trade Fair
Information Flyer Here(PDF)
In order to explore these business opportunities, we are organizing again a business mission to North-Korea (15 – 22 May). We will also visit the annual Pyongyang Spring International Trade Fair. This fair can be used by European companies to come in contact with potential buyers and suppliers in North-Korea. Information abouth both events has been attached.

North-Korean investment mission to visit The Netherlands (February)
There are investment opportunities in several areas, such as textiles; agro business (e.g. export of vegetables, fruit and flowers to South-Korea); mining (e.g. zinc, mica, tungsten, rare metals); real estate (e.g. office buildings); renewable energy (e.g. windenergy, batteries); Information Technology; electronics; chemicals and tourism. A high-ranking delegation from North-Korea will visit The Netherlands at the end of February, in order to discuss these opportunities in detail and to present specific investment projects. We can be contacted for further details.

New book on European – North Korean relations
Information Flyer Here (PDF)
This spring, the Hanns Seidel Foundation (Germany) will publish a new book about the relations between Europe and North-Korea. The publication: “Europe – North Korea: Between Humanitarianism and Business?” also contains two chapters about trade development and business issues – including my article on IT-cooperation. Its Table Of Contents has been attached.

With best regards, Paul Tjia (director)
GPI Consultancy, P.O. Box 26151, 3002 ED Rotterdam, The Netherlands
E-mail: [email protected] tel: +31-10-4254172 fax: +31-10-4254317 Website: www.gpic.nl

Posted in Computing/IT, Foreign direct investment, GPI Consultancy, Pyongyang International Trade Fair | Comments Closed

DPRK aims to re-establish 10-day markets

Tuesday, January 19th, 2010

According to the Choson Ilbo, the DPRK government has not given up trying to re-implement the 10-day rule:

“The North Korean Cabinet has told agencies under each ministry and provincial and municipal chapters of the Workers Party that it will replace urban marketplaces with farmers markets that will open every 10 days starting Jan. 14,” the Group Good Friends said in a newsletter. “The cabinet also released market operating rules and a list of items that can be sold, adding that market traders will be permitted to sell only agricultural produce and indigenous local products but not Chinese goods or domestically produced industrial products.”Large markets began sprouting in the North in 2004, increasing to an estimated 300 by 2007. North Korean authorities decided to crack down on black-market traders who move around all the time to dodge the authorities, and back-alley deals for fear that the practices would run rampant if unchecked, it said.

I have located approximately 200 markets in the DPRK using Google Earth. Links to locations of the Pyongsong, Chongjin and Hamhung wholesale markets can be found in this post.

Posted in General markets (FMR: Farmers Market), Good Friends | Comments Closed

North Korean Economy Watch