North Korean Economy Watch

I just got a newsletter update from Koryo Tours.  They are offering a discount tourist trip to North Korea for three days (Euro 750).  You can learn more about it here.

The price of the package is all inclusive from beijing including flights, accommodations, guides, entry fees and the other basics. You’ll also get two chances to see the Mass Games and a tour of Pyongyang’s monuments. Apparently you will also get to eat in local restaurants as opposed to staying sequestered in the hotel.

The trip runs from August 27 – 29, 2009, with the last date to book August 17, 2009. Students, children and groups of at least three are also eligible for discounts. And, Americans are allowed to take the trip.

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-7-8-1
7/8/2009

North Korea’s main wholesale market, in Pyongysong, was temporarily closed for just over a week during mid-April, but it has reportedly been open and operating normally since then. It was rumored, and reported [previously (see below)], that the Pyongysong Wholesale Market was shut down in mid-June. There was a report that officials felt the market had grown too large, and there was a plan to divide it into East and West Markets. However, reports of these plans have now been deemed nothing more than rumor.

A source in Kangdong-gun stated that there has been much talk of closing markets since the beginning of the year, but that no measures have been enforced and everything is operating normally. Another source reported that many traders are traveling to and from Sinuiju and Pyongysong, and that their numbers have been growing since the onset of summer. While rumors still abound regarding market closures, the source noted that there is significantly less talk of such measures compared to earlier in the year.

In January, North Korean authorities released a statement indicating that general markets would be transformed into farmers’ markets, and only open once every ten days. However, six months has already passed, and there has been no action taken. There have been no measures to transform even some of the largest markets, in Hyeryong, Hyesan, Musan and Sinuiju. That said, it is always possible that the North Korean authorities proceed with plans to close or transform the markets.

The majority of North Koreans trading in the markets do not believe the authorities could easily carry out market-closing measures. Due to the likelihood of large-scale civil revolts, the regime must come up with an alternative to the markets if it intends to close or transform them. The current food issues faced by the North make it impossible to close markets. In addition, transforming general markets into farmers’ markets would force residents to buy daily necessities and other manufactured products at department stores or government-run shops, but these shops have nothing in stock. Furthermore, preventing residents from selling in the markets makes it more difficult for them to acquire the food necessary to sustain themselves and their families. The number of empty stalls in markets appears to be slowing increasing, but a complete shutdown of the market would likely lead to protests.

Original Post:
North Korea begins closing general markets
Institute for Far Eastern Studies (IFES)
NK Brief No. 09-6-26-1
6/26/2009

It has been reported that North Korea’s market closing measure is slowly beginning to be enforced. The June 23 27* issue of North Korea Today, a newsletter from the South Korean group Good Friends, announced that the Pyongsong general market has now been shut down, in what some call the most prominent omen that all general markets will be shut down throughout the country. As the Pyongsong general market served as the central wholesale market for the entire North, some believe it was shut down first in order to encourage the use of smaller, more local traditional markets. In addition, central Party authorities have ordered department stores and general stores in Pyongyang to stock up on Chinese goods. The North Korean government has announced, on a number of occasions since last year, that general markets would be closed and turned into farmers’ markets, but for a variety of reasons, the measure has been on hold for over six months.

Regional authorities were also ordered to import various goods from China, in accordance with the demands of local citizens and regional conditions, in order to head off any concerns that daily necessities might not be available after the markets are closed. This series of measures indicates that the government is concerned that attempts to forcefully close the markets may lead to citizen revolts, as clashes between traders and police occurred previously when the North attempted to enforce market restrictions.

One official in Pyongyang stated that this measure put citizen’s concerns and inconveniences first, stating, “[The Party] must unconditionally get rid of markets. But on the inside, they see that there will be huge opposition from the citizens if they only use force, so this time they decided to combine it with conciliatory policies.” The source added, however, that authorities plan to continue to operate restricted markets while at the same time, completely changing the market system before the end of this year.

Currently, as the 150-day ‘battle’ campaign to improve the economy is underway, more and more lectures are also being given. One week after the North’s second nuclear test, propaganda speeches were given in each factory and business in Pyongsong, South Pyongan Province, stating, “Now there is no one in the world that can face off with our military might,” and, “If the United States and those countries that kowtow to it carry out an economic blockade against our country, we will see it as an act of war and stand against it with military power. If only we carry out the 150-day battle well this year, we will completely attain a Strong and Prosperous Nation. [All the people] must follow after the revolutionary military spirit of the People’s Army and open the door to a strong and prosperous nation without one day’s delay.”

UPDATE: According to the Daily NK, the closing of the Pyongsong Market was not successful:

Despite North Korean official attempts to shift general markets onto an agricultural format, the general markets are operating as normal because of popular resistance to change.

A source residing in Kangdong-gun, Pyongyang told Daily NK, “In mid-April, a wholesale market in Pyongsung was shut down for around ten days, but after that it reopened and continues to operate.” He added that, “I’ve heard that the existing market was supposed to close early this year and be changed into an agricultural market, but there have actually been no shutdowns at all.”

He continued, “I don’t know the exact reason for the closure of Pyongsung market in April, but I’ve heard that there was an investigation of the individuals who manage the big wholesale businesses there. Traders strongly opposed it, so the closure of the market could not be completed.”

The source added, “In Kangdong-gun and other districts of Pyongyang, there have been many rumors about market closures, but there have not been any so far. Markets are operating normally.”

A source from Shinuiju confirmed it. “Many rumors of market closure have circulated, but they are working as usual,” the source said, “Markets in Pyongsung are operating as well, so there are still many traders coming and going between Shinuiju and Pyongsung. Especially, as summer approaches, trade is increasing.”

He added, “People still talk about the closure of the markets, but they don’t talk about it as much as earlier this year. In truth, if the jangmadang is closed, it will be hard for even the cadres to live, let alone ordinary residents. So cadres also have a negative opinion of the measure, and for that reason it will be difficult to shift to agricultural markets.” 

Read the full story here:
Markets Continue Despite Official Bluster
Daily NK
Lee Sung Jin
7/3/2009

From GPI Consulting:

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. Inspired by the economic successes of its neighbouring country China, North-Korea has since a few years opened its doors to foreign enterprises. It established several free trade zones to attract foreign investors and there are several sectors, including textile industry, shipbuilding, agro business, logistics, renewable energy, mining and Information Technology, that can be considered for trade and investment.

North-Korea is competing with other Asian countries by offering skilled labor for very low monthly wages and by offering tax incentives.  Last year, North-Korea’s exports rose with 23 percent and its imports with 32 percent. Do you want to explore new business opportunities for your company? Then join us from 19 – 26 September 2009 on our trade & investment mission to North-Korea. The program includes individual matchmaking, company visits, network receptions and dinners. Furthermore, we will visit the annual Autumn International Trade Fair in Pyongyang (see photo). We will also meet European business people who are working and living in North-Korea.
 
The mission is meant for entrepreneurs from various business sectors; tailormade meetings will be arranged by our local partner, the DPRK Chamber of Commerce. The program of this unique mission has been attached and we can be contacted for further details. In case you want to participate: please register as soon as possible, so we can start the visa-application procedure.
 
With best regards,
Paul Tjia (sr. consultant ‘global sourcing’)
GPI Consultancy, P.O. Box 26151, 3002 ED Rotterdam, The Netherlands
E-mail: paul@gpic.nl tel: +31-10-4254172  fax: +31-10-4254317 Website: www.gpic.nl
 
N.B. some examples of investment opportunities in North-Korea:  
http://www.gpic.nl/invest(hungsong).pdf and http://www.gpic.nl/invest(clock).pdf 

GPI’s marketing flyer is here.

From China Business News:

Q: Koryo Tours has built its business by providing tour trips to North Korea. Why did you choose North Korea, and how tricky was it to get the business started?

A: In 1993, Joshua Green and I were approached by a North Korean colleague (that Josh had studied Chinese with at the Beijing Foreign Language University in 1998 and Nick played football with in 1993) who, after returning to Pyongyang had worked in the national travel company. At that time, it was a real fledgling travel industry (they only opened to western tourism in 1987) and less than 50 western tourists visited per year. We started going every month but with very few tourists, mainly driven by fascination, realisation that we had incredible access and the fun of working with some amazing Koreans. During the famine, we worked with aid agencies and continued tourism which brought in a steady amount of work for our Korean colleagues. in the past five years, DPRK tourism have seen growth, and we now take just under 1,000 tourists a year – about half of all western visitors. With my colleagues Simon and Hannah, we make sure that tourists have the best access possible to the country and people. Having specialised in one country for 16 years, it really does mean we are literally the only experts in this destination, and for every tourist we have taken it rates as one of their most amazing experiences.

Q: What effect does North Korea’s aggressive stance on defense have on your business – do people become more or less interested in visiting when it tests a nuclear bomb or fires a missile?

A: Every few weeks, North Korea makes the news for one reason or another, usually a negative reason of course. However, North Korea remains one of the safest and most fascinating countries in the world to visit. For those who are of the opinion that seeing a country for yourself is more valuable than watching the interpretation on the world news, then we provide them that access. In addition, as we accompany the tours, we provide an insight into the country that is difficult for a visitor to interpret. Our clientele are generally very worldly and aware and interested in what is going on, I think the DPRK being in the news for any reason puts it on people’s mental map and thus makes more people visit rather than being scared off.  

Q: North Korea is a pretty ‘left-field’ travel destination. What have been the key approaches to marketing your company, both locally and internationally?  

A: Our reputation has been established because we provide excellent service and we really do make sure that any visitor to Korea will have the time of their lives. We have a company responsibility to engage with the Koreans and much of our work is involved in cultural exchanges, film making and charity projects. I think this aspect of our work comes across to potential clients who see we really are more than a travel agency. We rely heavily on word of mouth and a great deal of our tourists know someone else who has been before, also we get a good number of repeat visitors as we don’t simply run the same tour over and over again. Being honest, doing the best job possible and maintaining good contacts with our previous clients are critical. This is how we keep a good reputation which we see as being the key to selling our product.  

Q:  Are you planning to diversify to other locations beyond North Korea – and if so, how do you choose new destinations?

A: Since 2006, we have been running twice-yearly tours to Turkmenistan, which is a fascinating and amazing place to go. In addition to this, in 2010, we are planning on offering a wider range of tours to places such as Tajikistan (for Persian New Year – when they hold a Buzkashi event), to the Tumen river area including Yanji in China, the North Korean free trade zone of Rajin-Sonbong, and Far Eastern Russia (around Vladivostok), also a tour to the North Western Caspian Sea region including Volgograd (once known as Stalingrad) and the mysterious republics of Kalmykia and Dagestan. All are remarkable, highly-interesting, and unique places that we think our discerning clients will be interested in. North Korea remains the focal point of our company, but these other destinations fit well in the mould of visiting unusual but interesting places.

Although I have never visited the DPRK with Koryo Tours, I did travel to Turkmenistan and I recommend it.  That trip launched my interest in Central Asia, and I quickly followed it up with visits to Iran and Tajikistan.

Read the full story here:
BizTalk Interview: Nick Bonner, Founder of Koryo Group
Gary Bowerman
6/27/2009

According to Yonhap:

Egypt-based mobile operator Orascom Telecom earned US$312,000 in first-quarter sales this year from its mobile service in North Korea on surging demand among the communist nation’s upper class, a company press release said Thursday.

More than 19,200 people have signed up for Orascom’s mobile phone service as of March since it began with 5,300 subscribers last December, according to the firm’s report on its first quarter earnings in 2009.

Martyn Williams offers some additional details which could call the venture’s profitability into question:

The network generated modest earnings of US$312,000 for its operators in the first quarter, before accounting for interest payments, taxes, depreciation and amortization. Orascom did not disclose whether the network made a profit or a loss for the period.

Koryolink achieved the EBIDTA (earnings before interest, taxes, depreciation and amortization) results on consolidated sales of US$4.4 million, said Egypt’s Orascom. The company holds a 75 percent stake in the network operator, which is called Cheo Technology but uses the Koryolink brand name. State-owned Korea Post and Telecommunications holds the remaining 25 percent.

Martyn also gives us some Koryolink prices:

The handsets, which are localized versions of Chinese models, cost between US$400 and $600 and the cheapest subscription costs 850 North Korean won per month.

That works out to about US$6 at the official exchange rate, but about 24 cents at the current black market rate used by many citizens and traders. Calls on this tariff are charged at 10.2 won per minute. The most expensive calling package costs 2,550 won per month and call rates are 6.8 won per minute.

Cheo offers service through a single retail shop in Pyongyang but opened a second temporary outlet during a March sales promotion. The promotion, available during the final two weeks of the quarter, offered lower price handsets, cheaper calling packages and free minutes. As a result, sales in March increased by 138 percent over February, said Orascom.

Read previous Orascom posts here. 

On a similar note, Kim Jong il’s English language translator was named ambassador to Egypt.

Read more here:
Egypt’s Orascom reports profit from N. Korean mobile service
Yonhap
Kim Eun-jung
6/25/2009

North Korean 3G network hits 19,000 subscribers
NetworkWorld
Martyn Williams
6/29/2009

The General Association of Koreans in Japan (Chongryun) have made a video about foreign direct investment and joint venture companies in the DPRK.  I have posted links to the video below.  It features the PyongSu pharmaceutical factory among other things.  It is in Korean and Japanese (with Japanese subtitles), so if there are any readers who care to translate, please let me know if there is any interesting information in the videos:

Part 1:

Part 2:

Part 3:

Time offers a short update on the DPRK’s technology sector.  According to the article:

The country’s Dear Leader has quietly launched an educational offensive to ramp up his country’s computing skills and build an internationally competitive IT industry, moves that experts say have been strongly encouraged by Kim’s oldest son, Jong Nam, who directs the Korea Computer Center. Grade-school kids are now drilled in Pascal and other computer languages, while gifted students are channeled into science and technology programs at Kim Il Sung University and Kim Chaek University, which some have dubbed the MIT of North Korea. Although currently stalled because of troubled bilateral relations with South Korea, another technical university, Pyongyang University of Science and Technology (PUST), is scheduled to open soon; foreign professors are supposed to eventually teach there, in English.

“They understand IT is critical for their development,” says Frederick Carriere, executive director of the New York–based Korea Society, who plays a pivotal role in bilateral programs with both halves of the Korean peninsula. This includes helping to broker a seven-year-long academic exchange between Syracuse University and Kim Chaek, which recently was able to open the country’s first digital library, using open-source software.

“I’d like to see more incentives for the DPRK to participate in this kind of standards-based [open-source] work, because through that participation, you get investment in the world of the sort that presumably reduces the likelihood of certain types of conflict,” argues Stuart Thorson, an IT and governance expert at Syracuse who oversees the program with Kim Chaek, which he says has been hampered by ineffectual U.S. export controls.

Those export controls, of course, are just a symptom of the growing international tensions between Pyongyang and the West. Whether it’s the country’s recent nuclear tests and heated rhetoric directed toward its southern neighbor or the standoff over its jailing of two U.S. reporters, the unstable relations make it more difficult for Kim to deliver on his IT promises.

Even more problematic are the regime’s overriding security preoccupations. Key power and telecom transmissions are buried underground, which complicates much needed maintenance and upgrades. More communications also means eroded state control, which is a vital regime concern. There are currently only a little more than 1 million domestic phone lines — about 5 per 100 inhabitants — although just 10% belong to individuals or households. Unauthorized international calls abroad can lead to fines and arrest and in one case reportedly led to the public execution of a plant manager in October 2007, according to Good Friends, a Seoul-based aid organization. The same fears of the outside world will mean a very cautious and slow opening of the Internet, which is now reserved for trusted government officials and foreigners.

“It would be nice to think that a new high-tech day is dawning over North Korea, but that would be a mistake,” argues David J. Smith, chief operating officer and director of the North Korea Project at the National Institute for Public Policy, a U.S. foreign policy think tank. “North Korea’s high-tech ventures will fail to save its economy without a systemic overhaul, of which the regime is incapable.”

Given a chance, though, North Koreans’ native intelligence does flourish. Two years after first entering a team in the IBM-sponsored Computer Olympics (the International Collegiate Programming Contest), the North Koreans made it into the finals. “They are capable of handling very complicated software, and the results are extremely good,” says Paul Tjia, a Dutchman whose GPI Consultancy has arranged for several European clients to outsource work to North Korean programmers. At Seoul’s Unification Ministry, IT expert Lee Duk Haeng says Samsung and Korean Telecom are among a handful of South Korean firms currently using North Korean engineers.

There are already hundreds of North Korean software engineers working in China, in border cities and elsewhere, according to Heejin Lee, a professor at Yonsei University, who has conducted fieldwork in the region. Most work as subcontractors for South Korean, Japanese or Chinese firms — sometimes in joint ventures — and Lee says there are numerous clandestine firms. The North Koreans earn high marks for their scientific and mathematical skills and come substantially cheaper than their Chinese counterparts — $300-$500 a month, one-third the cost of a Chinese engineer, or half the price of an Indian one, he says.

UPDATE: The first joint venture software company in the DPRK (which handles a number of outsourced projects) is Nosotek.  Here is an interview with the vice president Ju Jong Chol and German president Volker Eloesser.

Read the full article here:
North Korea Tries to Ramp Up Tech Infrastructure
Time
Ken Stier
6/22/2009

UPDATE 4: from a reliable source

The situation was caused by a mistranslation. Following the nuclear test and rocket launch earlier in 2009, the FCO suspended funding (and therefore visas) for FCO FUNDED DPRK PROJECTS IN THE UK for three months. This, unfortunately, was mistranslated into “suspending visas for DPRK citizens”, thus the cerfuffle.

UPDATE 3: By Michael Rank

Confusion over a reported ban on Britons visiting North Korea and North Koreans coming to Britain seems to have been cleared up.

Koryo Tours said last week that they had been informed by their partner, Korea International Travel Company, that “In connection with the recent measures taken by UK government not to allow DPRK citizens to enter the UK we also will not receive any UK citizens as tourists to the DPRK for the time being.”

After some confusion, a spokesman for the North Korean embassy in London said on Monday that they had been reassured that there was no ban on DPRK citizens visiting Britain and that North Korea was therefore issuing visas to Britons as normal, although as usual it “depends on the case”.  He had “no idea” how the confusion had arisen.

A Foreign and Commonwealth Office spokeswoman confirmed that “we have not introduced any new measures (regarding visas for North Koreans), nor have we refused any visas recently.”

The Home Office recently posted figures showing that in recent years Britain has somewhat surprisingly issued 13-18 North Koreans a year with tourist visas, including a few under-18s. Most of the few North Koreans visiting Britain presumably come as part of official delegations, including a Workers’ Party of Korea group who came last January.

Foreign Secretary David Miliband said on Monday: “No individual [North Korean] officials are currently subject to travel bans or asset freezes. The new UN Security Council Resolution 1874, passed on 12 June 2009 tasks the UN Sanctions Committee to designate further organisations and individuals for travel bans and asset freezes.”

UPDATE 2: Koryo Tours has notified me that the visa restriction has now been lifted.  According to their email:

We have just been informed by our Korean partners that the ban on UK citizens travelling to the DPRK has been lifted and they are now once more accepting visa applications from Brits.

All tours will be running as expected with no restrictions on any nationalities, and all US tours in the summer are expected to also go ahead.

UPDATE 1:  Michael Rank has managed to uncover the number of tourist visas issued by the UK government to North Korean citizens from 2005-2008 (source):

2005 
Over 18: 17
Under 18: 1

2006
Over 18: 13
Under 18: 3
 
2007 
Over 18: 12
Under 18: 1

2008 
Over 18: 15
Under 18: 2

See the origins of the travel ban below:

(more…)

UPDATE: IFES has contacted us with an update to this report:

“North Korea exports between 2-3 million tons of coal, collecting approximately 200 million USD.”

Original Post:
Institute for Far Eastern Studies (IFES)
NK Brief No. 09-6-9-1
6/9/2009   

The North Korean military, which has recently taken a hard-line position internationally with rocket launches, a nuclear test and inter-continental ballistic missile (ICBM) launch preparation, appears to be strengthening its position domestically, as well. It has reportedly taken charge of coal exports, previously the responsibility of the Cabinet, and other key economic interests.

According to sources inside North Korea, authority to export anthracite, the North’s most valuable export item, was transferred from a trading company under the control of the Cabinet to a military trading company earlier this year. North Korea exports between 200-300 tons of coal each year, collecting approximately two billion USD in foreign currency. Previously, this was shared among branches of the government, with the military, the Korean Workers’ Party and the Cabinet all similar export quotas.

One source stated, “Recently, China’s trade minister signed a contract for 60,000 tons of coal from a military-run trading company, and delivered one million USD-worth of corn as payment,” noting, “previously, North Korea’s trade partner [with China] was the Cabinet-controlled trade company.” The same source went on to note that it was “exceptional that as North Korea suffers from foreign capital shortages, it demands payment not in cash, but in corn…it looks like it is measure for military use.”

Other sources reported that, as of this year, the military has also taken control of the Bukchang Thermoelectric Power Plant, the country’s largest steam-powered electrical station. The Bukchang plant, built with Soviet supplies in 1968, can produce up to 2 million kW of electricity. It was formerly operated by the Ministry of Electric Power Industry, which is under the control of the Cabinet, but at the beginning of year, some authorities were purged on charges of bribe-taking and providing power designated for government facilities to foreign capital enterprises and other businesses. Since then, the military has run the plant.

The increased number of economic assets in control of the military reflects the military’s recently-strengthened position within the regime. The North Korean economy can be divided into several sectors: Kim Jong Il’s private fund, managed by Party operations; the military-industrial ‘second economy’; and the official economy, under the control of the Cabinet. The military’s increasing control over the official economy appears to be a move to completely implement ‘Military-first Politics.’

Koryo Tours has been in the North Korea tour business for many years.  They have helped expand tourism in the DPRK and made three great documentaries in the country: The Game of Their Lives, A State of Mind, and Crossing the Line. 

They offer some interesting new information in their June newsletter:

1. Despite the recent nuclear test and missile launches it is still business as usual–and this is for tourist companies as well as for the various European Embassies in Pyongyang. Koryo has tourists going in almost every week and fully expect the Arirang Mass Games (info) to be going ahead from 10th August to the end of September and maybe into October, as previously confirmed. American tourists are welcomed during this time and tours are showing a high level of interest.

2. New tourism attractions:Koryo Tours has just made trips up and down the Taedong river in central Pyongyang available to tourists for the first time.  Several sizes and speeds of vessels are available for short jaunts in the city centre as well as longer cruises to the suburban scenic spot of Mangyongdae. They plan to add these trips to many of their tours.

3. Charity Projects: In addition to Koryo Tour’s long running relationships with the Rotarian Society and Love North Korean Children they have just launched an appeal to raise money for a couple of charitable projects in the DPRK, one to purchase the first ever shipment of Braille dictionaries for blind children, and one to buy playground equipment for orphanages. More details on these projects can be found on their website if you can help then please let them know.

4. Mt. Myohyang named UNESCO site: UNESCO recently awarded the Mt Myohyang area in the DPRK the status of Biosphere Reserve. The area is a sacred site as, according to legend, it was the home of King Tangun, forefather of the Korean people. The scenic mountainous area rises nearly 2,000 metres above sea level. Its spectacular rocks and cliffs provide a habitat for 30 endemic plant species; 16 plant species that are globally threatened and 12 animal species that are also endangered. A wide variety of medicinal herbs also grows in the site.  For tourists, it is well known for the International Friendship Exhibition which is a series of subterranean halls housing the gifts which were given to the 2 leaders by people from all over the world.

If you would like to receive the Koryo Tours newsletter, visit their home page and click on the newsletter link in the upper right corner of the page.