North Korean Economy Watch

Kim Dong-Jin, head of South Korean steel company POSCO‘s China branch, visited Pyongyang Tuesday for talks on purchasing more of the DPRK’s coal, iron ore, and other raw materials.

According to the AFP: 

POSCO, the world’s fourth largest steelmaker, has imported 200,000 tons of coal from North Korea every year.

South Korea’s investment in the North’s rich mineral resources has been sluggish due to the standoff over the North’s nuclear programme and mixed views on whether such investment can be profitable.

North Korea has promoted raw material exports as a means of generating much needed hard currency for some time.  Unfortunately, this development strategy will bring the fewest benefits to the North Korea people. Look at any oil-exporting country for comparison.  Raw materials exports generally enrich the politically connected—and workers, who in North Korea are unable to leave their jobs or negotiate their wages, generally (pun alert) get the shaft.

South Korean firms operating in the North, however, do tend to offer better working conditions than North Korean or Chinese firms.  If POSCO launches operations in North Korea, hopefully public pressure and the profit motive will see an increase in productivity, wages, and working conditions for the DPRK’s miners.

South Korea apparently also operates a graphite mine in North Korea.  If anyone has any information on this, please send it my way.

Read the full story here:
POSCO eyes NKorea raw materials
AFP
6/25/2008

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

A few weeks ago, I speculated that no one knows how much food the North Koreans really need, even the DPRK government.

On one side of the debate, the UN World Food Propgram claims that North Korea has a 1.67 million ton grain shortfall leaving 6.5 million individuals at risk.  These are North Korea’s numbers and the WFP/FAO is required to accept them.

On the other side of the debate, Marcus Noland and Stephan Haggard argue the DPRK’s grain shortage is closer to 100,000 metric tons.  The discrepancy arises because the UN’s estimate is based on individuals needing 460 grams of grain per day to sustain life, but in reality, grains are supplemented by potatoes and other vegetables, lowering the amount of aid needed to sustain the population.  Their calculations are explained here.

South Korea’s National Intelligence Service and Ministry of Unification buttress the Noland/Haggard assertion that things are not as bad as the UN numbers suggest (Daily NK). 

In an effort to document the state of affairs via field research, the UN WFP is conducting a survey across 50 counties in the DPRK.  According to the BBC:

Staff from the UN World Food Programme have been given rare access to North Korea’s countryside to assess the seriousness of food shortages there.

The audit, being carried out across more than 50 counties, comes at a critical time.

Some recent reports suggest that the country may be on the brink of famine.

North Korea is estimated to have a shortfall of 1.6 million tonnes of grain because of last year’s flood-affected harvest.

But a true picture of the scale of the crisis is very difficult to determine.

Twelve WFP staff and eight US aid agency workers are now fanning out through North Korea, albeit with government minders, visiting hospitals, schools and individual households.

Their work is expected to take two weeks, by which time the world should have a much clearer understanding of the true nature of North Korea’s food crisis.

Here is the World Food Program’s North Korea Page.  I have not found anything on the survey team, methodology, or operations.  I will post something here if I do.

Read the full artilces here:
Balance of Principle and Flexibility Are Needed When Providing Food Assistance to North Korea
Daily NK
Choi Choel Hee
6/16/2008

Asia’s Other Crisis
Newsweek
Stephan Haggard and Marcus Noland
6/26/2008

UN assesses N Korea food supply
BBC
John Sudworth
6/17/2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-6-17-1
6/17/2008

According to an article run in the June 10 issue of the Rodong Sinmun, the newspaper of the North Korean Workers’ Party, economic independence “is not closing the doors and solving everything 100 percent on our own,” and stressed the fundamental rule of ‘selling what is present and buying what is missing’, otherwise known as comparative advantage*, as the key to advancing overseas foreign economic relations.

The newspaper article, titled, “The Main Principle for Maintaining the Basic Path Toward Construction of a Powerful Economic State,” explained, “In every country there are limited resources, and at the level of advancement of the economy as well as science and technology, and on the principle of trading based on what is available and what is necessary in each sector, it is normal to give what one has and receive what one does not in order to advance the economy.”

This fundamental rule of strategic trade can also be seen in the July 2005 agreement reached at the 10th meeting of the South-North Economic Cooperation Promotion Committee. At the time, the two Koreas agreed to mobilize natural resources, funds, technology, and more as much possible, based on what was available in each state, in order to advance joint national projects.

The newspaper stressed that “not mobilizing domestic preparations and possibilities and relying entirely on outside [powers] to advance the economy is, in the end, putting the fate of the economy in someone else’s hands…by fully mobilizing in-country forces and potential as a base, resolving necessary issues through foreign economic relations is just secondary.” The article added that the country “must stand by this principle to build a strong economy with an independent strength that would not waver even if there were global economic waves,” and that this would, “increase and guarantee the physical livelihoods of the people.”

The article closed by noting, “the important, fundamental issue as [North Korea] maintains the basic path toward the construction of a powerful economic state…is keeping the economic structure’s distinctive qualities alive while technically reviving the people’s economy,” and furthering the development of heavy industries and national defense industrial sector.

_______________

*North Korean Economy Watch: “This is not the definition of comparative advantage.  Click here for wikipedia.”

From the Bangkok Post: 

North Korea, one of the world’s most reclusive nations, will attend the Association of Southeast Asian Nations (Asean) meeting in Singapore next month, Singaporean Foreign Minister George Yeo said.

Mr Yeo made the announcement last week during his meeting with Thai journalists on an exchange programme.

Asean foreign ministers agreed to invite North Korea to sign Asean’s Treaty of Amity and Cooperation (TAC) during an informal conference in Singapore in February.

Pyongyang joined the Asean Regional Forum in 2000 and has diplomatic relations with Asean nations. If North Korea signs the TAC, it would be considered a great advancement for peace-building in the Asia-Pacific region.

TAC is a regional code of conduct which encourages the peaceful resolution of conflict through dialogue.

TAC has been adopted by 24 countries, including the 10 Asean nations.

Read the full article here:
North Korea will attend ASEAN meeting
Bangkok Post
Anchalee Kongrut
6/16/2008

Seoul-based “Good Friends” says North Korea is dangerously short of food.  The group released video interviews with disguised North Korean officials appealing for food aid.  They claim one or two people are dying each day in every district of several of North Korea’s southern provinces, which were hardest hit by last year’s heavy flooding. 

 From Voice of America:

One North Korean man says farmers have consumed all of their seed corn and grain and are suffering the most.  Hunger has also brought education to a halt.

“Teachers are saying that if food conditions remain in this precarious state, children will not report to school regularly,” he said. “When the teachers try to get the students to come to school, they are always told that either the children have to go begging for food with their parents, or that they are lying in bed because of starvation.”

“In some districts, workers have not received a month’s worth of rations.  This is the reason why workers are not coming to their factories,” an unidentified Korean said.

Check out the videos on the Voice of America web page:
South Korean Aid Group Releases Video Testimonies Of North’s Food Crisis
Voice of America
Kurt Achin
6/9/2008

Institute for Far Eastern Studies (IFES)
5/6/2008

Even North Korea’s North and South Hwanghae Provinces, an area known as the DPRK’s ‘Ricebowl’, now appears to be suffering severe rice shortages, with prices at the end of last month hitting 4,000~4,500 DPRK Won per kg, more than three times the cost of a kilogram of rice last February, according to a June 5 report by Good Friends, a human rights group focusing its efforts on North Korea.

According to Good Friends’ latest newsletter, prices across South Hwanghae Province all rose to 4,500 DPRK Won on May 30, and at the same time, prices in South Hwanghae rose to over 4,000 DPRK Won per kg. In Sariwon, North Hwanghae Province, rice was 1,350 DPRK Won/kg in February, rose to 1,700 DPRK Won/kg in March, climbed again to 2,200 DPRK Won/kg in April, then shot up to 2,500 DPRK Won/kg on the 10 th of last month, 3,500 DPRK Won on the 25 th, and 4,200 DPRK Won on the 30 th. As the average monthly wage of a North Korean laborer is thought to be around 3,000 DPRK Won, rice selling at 4,000 DPRK Won/kg is well out of reach.

Corn prices in the Sariwon region at the end of last month was 1,950 DPRK Won/kg, 270 percent higher than the 720 Won prices seen in February, and the newsletter reported that prices throughout North and South Hwanghae Province were generally 1,950-2000 DPRK Won/kg. In particular, the newsletter stressed that at one military base in the Hwanghae area, rations have run so short that officers with children under the age of 12 will be ordered to send their families to their parents’ or in-law’s house until rations are reissued in November.

The newsletter drives the point home by pointing out, “These officers that send their families will take their meals on base…this is the first time since the ‘arduous march’ that there has been an order to send families [away] because of this kind of ration shortage.”

Institute for Far Easter Studies (IFES)
NK Brief No. 08-5-22-1
5/22/2008

Earlier this month, the South Korean government announced that it would seek to relax regulations concerning cooperative ventures and exchanges with North Korea. Currently, South Korean companies, organizations or individuals wishing to enter into business agreements with North Korean partners were required to get government permission not only for the project, but for the individuals involved in the project.

On May 8, the Ministry of Unification announced plans to abolish the system granting (or denying) permission to individuals involved in these ventures, and to maintain only the system through which it grants authority to carry out specific projects.

Cross-border traffic faced similar red tape, as permission was required not only for goods being imported or exported, but for the importers and exporters themselves. The new plan includes measures for these import and export regulations to be loosened so that it is only the goods that need review, not the people involved in the trade. In addition, trucks and other equipment used to carry goods across the border will be certified for a period of five years, more than twice as long as the current two-year licensing system.

The government is also moving to ease requirements calling for South Korean citizens to report all contact with North Koreans, and instead to require reports on conversations only if the topic falls outside that of the approved project.

Reflecting the growing amount and diverse nature of inter-Korean cooperative projects, and the ROK government’s policy of encouraging such exchange, this new proposal is aimed at reducing the red tape and paperwork hassles necessary to launch and carry out these projects by reducing the amount of information required by the applicant and the volume of cross-checking required by government offices. At the same time, the proposal calls for the introduction of fines for those found to be filing false applications or reports.

If this proposal does not get mired in the Cabinet or other committees, it is expected to reach the floor of the National Assembly sometime in June.

Update from Dr. Petrov:

Among the foreign companies attending the 11th Pyongyang Spring International Trade Fair in the DPRK last week was Phoenix Commercial Ventures Ltd.

Representatives from Phoenix Commercial Ventures attended the fair and manned a stand representing member companies of the European Business Association in Pyongyang, together with members of the management team from Sinji JVC and Hana Electronics JVC (joint venture companies formed with Phoenix) and Daedong Credit Bank – Phoenix’s banking partner in the DPRK – (since 2000 Daedong Credit Bank has been 70% owned and managed by a company run by professional fund managers. The remaining 30% is held by Korea Daesong Bank).

Nigel Cowie (CEO of Phoenix, General Manager and CEO of Daedong Credit Bank and Vice President of the European Business Association) said: “The trade fair provides an ideal venue and opportunity for companies to showcase their products and services, as well as providing an excellent networking opportunity. Phoenix Commercial Ventures and Daedong Credit Bank are proud to have participated in this regular event, which provides a springboard for economic development and growth”.

“Although the fair provides the opportunity for participants to establish new contacts for trade relationships, we also wanted to emphasise investment opportunities. Something that is often overlooked is that it is perfectly possible to create and run successful joint ventures in the DPRK. We have shown this with Daedong Credit Bank, which has been operating successfully for 13 years, and with Hana Electronics, which has been doing the same for five years, and are in the process of repeating the process with Sinji JVC, our youngest joint venture,” concluded Nigel Cowie

An extensive gallery of photos from the trade fair can be viewed on the Phoenix website.

ORIGINAL POST:
DPRK holds it’s largets ever Pyongyang International Trade Exhibition
Institute for Far Eastern Studies (IFES)
(NK Brief No. 08-5-19-1)
5/19/2008

From May 12th to the 15th, North Korea held the eleventh annual Pyongyang International Summer Product Exhibition in the Three-Revolution Exhibition Center. The trade show hosted over 180 foreign businesses, making it the largest convention to date.

Companies from North Korea, China, Taiwan, Russia, the Netherlands, Germany, Syria, Switzerland, Australia, England, Italy, Spain, Vietnam, Thailand, France, Finland, and several other countries participated in the show, displaying a wide range of manufacturing machinery, electrical and electronic equipment, conveyor systems, petrochemical materials, medical supplies, daily necessities, foodstuffs, and other goods.

With more than 120 Chinese companies and more than 30 vendors from Taiwan, North Korea’s largest-ever convention was host to over 50 vendors more this year than the previous record of over 130, set last year.

With a large-screen television positioned at the entrance of the hall displaying multimedia advertisements and a range of large-scale billboards and advertising displays for North Korea’s domestic companies set up around the exhibition center, there was also a distinct sense of commercialism in the air.

In particular, there were several booths selling the wares of large Chinese industries, as well as several affiliates of the Haier Group Co. Ltd., representatives from TCL Electronics Co. Ltd. , sales staff from China Hong Kong Manufacturers Co. Ltd. and other main offices directly participating in the event.

The Pyongyang International Product Exhibition has been held in the summer annually since 1998, and since 2005, a convention has also been held each fall.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-5-13-1

Small and mid-sized Chinese companies are now looking toward North Korea. The Chinese press reported on May 5 that the industrial union of Dungta, a small city of just over 500,000 located south of Sunyang in Liaoning Province, recently spent seven days looking into opportunities in the North on the invitation of the Choson Bongwha Company.

The purpose of this recent invitation appears to be that North Korea is looking to improve small and mid-sized industrial activity by allowing foreign entities to set up shop. The North was seeking investment for an oil paint factory, a textile factory, and a rolling mill. The Chairija factory in China’s Dungta City is planning to invest three million euros (aprox. 470 million won) to set up a paint manufacturing facility in the DPRK.

The reason Chinese businesses are looking toward North Korea is that even in China wages have been growing sharply, and as labor laws are amended it has become more difficult to hire employees, driving up production costs and lowering the competitiveness of exports. Cheap and easy labor in North Korea is turning the eyes of many Chinese companies.

The importance of this latest visit by the Chinese industrial representatives was reinforced by the invitation by the Choson Bongwha Company, which specializes in commission-based textile production. This appears to be related to the North Korean authorities’ plan of boosting the standard of living throughout the country by hosting Chinese heavy industries. Recently in the North, companies have joined in partnerships with Chinese businesses to manufacture lighting and cigarettes, showing that Chinese businesses are also interested in enhancing their presence in North Korea’s domestic market.

Just as South Korea’s small and medium-sized businesses have turned to China in order to stay competitive, now Chinese companies are eyeing North Korea’s cheap labor force in order to maintain their edge.