North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-2-12-1
2/12/2008

South Korean businesses currently involved in inter-Korean economic cooperation are facing many difficulties, both due to and in spite of the system in place, so that at the moment, investment in North Korea does not look much more appealing than in Vietnam or China.

The Korea Chamber of Commerce carried out a survey, titled “Business Perspective on the Direction of South-North Economic Cooperation Policy”, targeting 300 successful businesses (170 companies responded) and 200 companies currently involved in inter-Korean economic cooperation (132 companies responded). According to the results of the survey, 79.4 percent of companies involved in inter-Korean cooperation responded that they are “currently facing systemic and procedural difficulties.”

More specifically, 44.7 percent pointed to the “3-C” (commute, communication, and customs) issues, 22.4 percent pointed to “claim resolution procedures,” 14.3 percent highlighted “difficulties with financial transactions,” 11.8 percent chose the “ban on the import of strategic materials,” and 5 percent indicated that “limited markets” were the main issue.

In addition, 58 percent of responding companies noted issues not related to the system set up for inter-Korean cooperation. 36.6 percent pointed to difficulties resulting from the “lack of understanding of market economics,” 28.7 percent noted a “lack of supervision by managers,” 24.8 percent chose “uncooperative, highly tense attitudes,” and 8.9 percent pointed out “demands for quick production.”

When asked about the relative attractiveness of investment in North Korea if the current situation were maintained, as compared to Vietnam and China, only 27 percent responded, “more attractive”, while 53.7 percent, or twice as many companies, responded that investment was “impossible.”

However, 58 percent responded that, in the event the North’s nuclear issues were resolved, investment in North Korea would be “more attractive than China and Vietnam”, while only 21.7 percent responded that investment in the North would still be “impossible.”

The overall impression of these companies regarding inter-Korean cooperation is that “improvement of inter-Korean relations offers opportunities for new enterprises and is a positive influence on the South Korean economy” (65.3 percent), and 19 percent felt that cooperation would “in the future, serve as a springboard for the relaunch of the South Korean economy.” 15.7 percent of responding companies felt, however, that “there would be no substantial positive influence on the economy.”

Currently, a resolution to the North Korean nuclear issues is the most important factor, but it is imperative that pledges of the incoming ROK administration such as strengthening investment security, preparing claim resolution measures and other issues to placate business interests, and nurturing North Korean exporters, are institutionalized.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-2-5-1
2/5/2008

Kim Jong Il’s first visit of the year was reported on January 6 to have been to the Ryesonggnang hydro-electric power plant. Generally, the leader’s visits in the first months of the year, along with the New Year’s Joint Editorial, which focused on economic recovery, set the tone for the coming year’s policies. His second inspection of the year was to a military unit.

Defectors claim that prostitution is on the rise in North Korea, and on January 9, the aid group ‘Good Friends’ reported that the DPRK has begun to close massage parlors as part of a crackdown on prostitution. The agency reported that in the DPRK there was a “steady campaign to weed out decadent foreign culture,” and that in September, DPRK soldiers were ordered to avoid alcohol, sex, and money.

On January 16, it was reported that Kim Jong Il had instructed all DPRK institutions to reduce their bureaucracies, including senior staff, by thirty percent.

Figures released by North Korea’s Korean Central News Agency indicate that the DPRK’s population had increased to 23.6 million in 2004, the latest available figures. According to DPRK figures, the population has grown from 22.1 million in 1996.

North Korea announced the closure of its Australian embassy on January 22. While the DPRK will continue to maintain diplomatic relations with Australia, it apparently can no longer afford to maintain an embassy in Canberra.

According to a report released by the International Red Cross, North Korea has the largest number of people in the world killed by natural disasters over the past decade. The report states that 458 thousand North Koreans have died from natural disaster, 38 percent of the disaster-caused deaths in 220 countries from 1997-2006.

A U.S. Senate investigation reported that the DPRK funneled as much as 2.7 million USD through a bank account set up from UN development projects. The report stated that North Korea used the UN account due to fears that the United States would block its ability to transfer money internationally.

DPRK Nuclear Negotiations

2008 opened with the United States and Japan releasing statements expressing their disappointment at North Korea’s failure to meet its December 31 deadline to fully disclose the extent of its nuclear programs, while North Korea’s New Year’s Joint Editorial called for “stability on the Korean Peninsula and peace in the world” as well as an end to hostile U.S. policies. A U.S. White House spokesman stressed that there was still opportunity to move forward with negotiations, stating, “the important thing is that we get a declaration that…needs to be full and complete,” not whether the declaration is made by the deadline.

On January 4, North Korea claimed it had met its obligations to come clean on its nuclear programs, and that it had provided Washington with a list of its nuclear programs in November. Pyongyang also threatened to bolster its “war deterrent” because Washington had failed to provide promised aid following the declaration. Washington denied that any complete declaration had been made.

A senior Russian diplomat was quoted on January 11 as saying that while Russia regrets the slowed state of progress in talks on DPRK nuclear issues, Russia will fulfill its promise to provide the North with fuel oil. 50,000 tons of fuel oil were delivered on January 20~21.

According to a book of figures recently published by the National Statistical Office, ”Comparison of North and South Korean Socio-economic Circumstances”, the DPRK”s crude imports over the past several years bottomed out at 2,325,000 barrels in 1999, then rose to 4,244,000 barrels by 2001. Since 2001, imports have steadily fallen until only 3,841,000 barrels were imported in 2006, recording the least imports in the last five years.

North Korea opened its first online shopping mall in January. The site offers items from fourteen categories ranging from machinery and building materials to stamps and artworks. The site, www.dprk-economy.com/en/shop/index.php, is based in China.

Orascom Telecom, a Cairo-based phone operator, has been granted the first commercial license for provision of mobile phone services in North Korea. The license was granted to CHEO Technology, a subsidiary that is 25 percent-owned by the state-run Korea Post and Telecommunications Corporation.

DPRK Abduction Issue

The Cambodian Foreign Minister announced on January 16 that his country had been working behind the scenes to find a resolution to the DPRK-Japan abduction issue. The minister stated, “Cambodia is in a position where it can hold high-level meetings with North Korea, and it has the ability to persuade North Korea.”

Inter-Korean Affairs

The incoming Lee Myung-bak administration announced on January 4 a plan to develop an international cooperative fund to support North Korea’s economy. The plan is said to call for World Bank and the Asia Development Bank to help, and for South Korea to provide 40 billion USD.

On January 7, it was reported that Lee Myung-bak’s presidential transition team had asked the ROK Unification Ministry to slow the pace of inter-Korean economic projects and to link them to progress in the six-party talks. The incoming administration has promised not to link humanitarian projects such as rice and fertilizer aid to nuclear negotiations.

The Lee Myung-bak administration announced plans for downsizing the South Korean government, including disbanding of the Ministry of Unification. Opposition to the plan points out the role played by the ministry in improving inter-Korean relations, while proponents to the plan of relegating the ministry’s duties to the Ministry of Foreign Affairs and Trade applaud the move to align North Korea policy with standing foreign policy directives.

On January 14, it was reported that Lee Myung-bak had asked the United States to further engage in talks with DPRK military leaders, while presenting a balanced approach, stating that “our people don’t support the idea of giving lavish aid to the North nor do they want to irritate it too much, I believe.” He went on to add that the United States holds the key to easing DPRK fears of opening up.

The net worth of inter-Korean exchanges totaled 1,797,890,000 USD in 2007, up 33% from the 1.35 billion USD in the previous year. The almost 1.8 billion dollars in trade recorded in 2007 is the highest to date, and is equal to 65 percent of the DPRK”s non-Korean trade volume of 2.996 billion USD in 2006.

The Seoul-based International Vaccine Institute announced on January 14 that it will soon begin inoculating approximately six thousand North Korean children against bacterial meningitis and Japanese encephalitis.

The two Koreas began working-level military talks on January 25, marking the first talks of the year. During talks, the North proposed reducing the frequency of the inter-Korean rail services, citing a lack of cargo. The Southern delegation felt that the frequency was an important indication of inter-Korean cooperation. The two sides agreed to continue daily runs, but to reduce the number of empty carriages in the future.

North Korea is still not as attractive to businesses as other Asian neighbors. A survey released by the (South) Korea Chamber of Commerce and Industry on January 28 indicated that China and Vietnam are more attractive to ROK businesses. According to the survey, 80 percent of businesses have difficulties starting or operating businesses in North Korea.

An ROK special envoy returned on January 23 from Moscow after proposing a joint ROK-DPRK-Russian cooperative project in eastern Siberia. President-elect Lee Myung-bak sent a letter to Russian President Vladimir Putin pushing for cooperation of “North Korea’s workforce, Russia’s resources and capital, and [South] Korean technology.”

U.S.-DPRK Relations

On January 9, amidst reports concerning possible DPRK-Syria nuclear connections, it was reported that in 1991 Israel was posed to strike a ship suspected of delivering missiles from the DPRK to Syria, but was dissuaded by Washington.

A U.S. State Department official stated on January 22 that North Korea had met the legal criteria to be removed from the U.S. list of state sponsors of terrorism. This came just after reports of conflicting opinions within the Bush administration, with Secretary of State Condoleezza Rice sharply rebuking Special Envoy on North Korean Human Rights Lefkowitz, who stated that North Korea is not serious about nuclear disarmament. Rice went so far as to say that Lefkowitz “certainly has no say on what American policy will be in the six-party talks,” dismissing his negative position on the failure of North Korea to meet its obligations. The White House later stated that North Korea must make a full declaration of its nuclear activities before being removed from the list.

Five officials from the DPRK recently visited the United States in order to learn how to treat and prevent tuberculosis, a serious concern for the North that is “practically non-existent in most developed countries.” The officials were invited by The Korea Society, which is based in New York.

DPRK-PRC Relations

According to the PRC General Administration of Customs, China’s oil exports to North Korea were the same in 2007 as they were in 2006. China sent 523,160 tons of oil to North Korea in 2007.

A senior PRC Communist Party official traveled to Pyongyang for a meeting with Kim Jong Il on January 30. Wang Jiarui, director of the International Liaison Department of the Chinese communist party, was to convey a message to Kim, inviting him to the opening ceremony of the Beijing Olympics. While Kim reportedly told Wang that there would be no change in the DPRK stance on nuclear negotiations, he also assured the Chinese envoy that North Korea had no intention of harming DPRK-PRC relations.

Joong Ang Daily
Nam Jung-ho
1/31/2008

Tuberculosis, practically non-existent in most developed countries, is North Korea’s biggest concern. Five public officials from the communist country recently visited the United States to learn how to prevent and treat the disease, according to an official of The Korea Society, a New York-based nonprofit group that invited the North Koreans.

The official, who declined to be named, said visits to the United States by North Korean public health officials are not new, but publicizing them is.

“Things have changed. In the past, we would have been bombarded with complaints about helping North Korea, suspected of supporting terrorism, if we had officially announced it,” the representative said. “The program could have been canceled completely, so we kept the program as low profile as possible.”

Tuberculosis is extremely rare in South Korea, but more than 1 million people a year in the impoverished North get infected with the disease.

The public health officials were taught how to prevent and treat tuberculosis, an infectious disease caused by bacteria. Several area medical institutes promised to donate medicine and medical instruments to the North to fight the disease, the representative said.

“We are interested in the efforts to dispel diseases, since they can not only serve humanitarian purposes but also benefit U.S. medical research,” said the representative of The Korea Society. “In North Korea, they can implement perfect control over their patients, making it easier to measure the effects of new medicines or new treatment.”

According to the official, three doctors and two public health officials from North Korea visited eight hospitals and other public health centers in San Francisco, California from Jan. 12 to 19. The visit was arranged by The Korea Society and Stanford University.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-12-1-1

Much time and energy has been devoted recently to the promotion of a scheme to further develop North Korean natural resources. In July 2005, the Committee for the Promotion of South-North Economic Cooperation agreed to cooperate in the joint development of the North’s underground resources, and in July of last year a project was launched. A total of 17 agreements with the North have been reached, through which target mines have been selected and inspection methods, time-frames, and other details have been worked out. Many difficulties were faced during negotiations, but through continuous information gathering, it was decided that there was sufficient cause to invest in the project, so a proposal was made and the very first inter-Korean resource development enterprise was launched.

Since last August, forty-seven experts in mining, infrastructure, and other areas have carried out general as well as detailed inspections of all aspects of the Kumduk Zinc Mine and Ryongyang and Daeheung magnesite mines, including infrastructure such as railway and road access, harbor facilities, and electrical capacity. The North was convinced to allow photography and surveying of mining sites, as well as the 90km of rails and roads stretching between the mines and Danchun Station and the nearby Kim Chaek Harbor. Through these surveys, enough information was gathered to satisfy investors, and to publish three volumes worth of inspection reports and pictures.

The Danchun region mining project is one that has been thouroghly prepared through long negotiations and numerous inspections and surveys. Now, based on the results of last year’s surveys, the project’s feasibility study is scheduled to be completed by the end of March. The on-site inspections confirmed the quality and marketability of the mining resources, and the potential for mining development.

In addition, because the mines are currently operational, the risk is much lower than that of an exploratory project. It was assessed that only some parts of the power and railway systems need improvement. Of course, full investment in the project would come about only after completion of the feasibility study currently underway.

A DPRK natural resource development project is necessary for both North and South Korea. For the South, mineral resources can be expanded through investment in production, while the North can benefit economically by increasing production through South Korea’s capital infusion and the introduction of mining technology.

This venture can also play an important role in accomplishing the denuclearization and development plans of the incoming Lee Myung-bak administration. Direct investment in locations in North Korea is the preferred method for advancement of the North’s resources. In particular, investment into energy infrastructure necessary for the processing and transport of these mined goods is preferred over other forms of investment. It is important for South Korea to invest in developing the North’s resources before other outside investors take advantage of the opportunity.

Institute for Far Eastern Studies
NK Brief No. 08-1-29-1

It is being reported that North Korea’s Chungnyun Mine, in Hyesan, Ryanggang Province, is facing severe economic difficulties due to floodwater. Hyesan mines produce 80 percent of all North Korean copper, and the North had estimated that it will be able to continue mining copper there for the next forty years. Chinese firms in Hebei’s Luan River region had wanted to import 51 percent of Hyesan Chungnyun Mine’s product, but the deal fell through due to opposition from North Korea’s committee overseeing its second (military) economy.

In 1996, during the North’s ‘Arduous March’, electricity was not provided to the mine, leading to flooding in the mineshafts. Since 1998, Kim Jong Il has budgeted 8.2 million USD to dewater the mine, and the mine was recovered using electricity and equipment provided by China.

The mine resumed operations in May, 2004, and in March of last year even an ore-dressing plant and crushing facility were constructed, indicating that there were high expectations that production would grow. However, as water filled up at the dam for the near-by Samsoo Powerplant, completed in May, the mines began to flood again.

There was no end to criticism that the powerplant, located in Jangan-Ri, Hyesan, Ryanggang Province, was to be constructed on a limestone foundation that would leech massive amounts of water, however, as a result of its construction, despite this opposition, water leaks out of the power station and has flooded the mine.

In the event that North Korea abandons the Hyesan Chungnyun Mine, it will be faced with the difficulty of needing to import the large amounts of copper required by the manufacturing industry. As this mine began to flood, North Korea has begun to import most of the copper necessary for its economy from Chile.

Currently, there is no feasible way to technically restore the mine, so as senior authorities in the North are demanding that the mine be saved at any cost, those in charge of operations are said to be uneasy.

Daily NK
Yang Jung A
1/31/2008

Due to the food export restraint imposed by China, the price of food items have been rising significantly recently, revealed Good Friends, a nongovernmental organization for North Korea, through a newsletter released on the 30th.

The newsletter relayed, “The price of rice, flour, corn, and grains has been continuously rising due to a systematic adjustment in trade exchange with China. With the Beijing Olympics ahead, the duties on food items have gone up 5% for rice, 20% for corn, and 20~25% for flour.

The newsletter also divulged that “China demands an export permit for grains. Rice and corn are flowing into North Korea because the export permits issued last year still remain in effect. However, China has not yet demanded any export permits for flour, and therefore flour cannot be exported to North Korea.”

“As a result, the price of flour has been increasing rapidly within just a month. In December of last year, the price of flour remained at 1,000 won per unit for the most part, but since the new year, it rose to 1,700 won per unit. People who have been selling bread, dumplings, and snacks have not been able to do business due to the shortage of flour.”

The source relayed, “The North Korean custom house has been requesting a quality verification report on par with international standards at the time of the importing of Chinese food products, but a majority of merchants with whom food is traded has not been able to follow the new standard yet, saying such documents are hard to provide.”

“So, the food items have not been imported into the market, which has caused the price to continuously rise due to the lack of provisions. Nowadays, even if people tried to buy a 1 kg of rice for over 1,400 won, they are unable. Chinese companies who have been dealing with North Korea have predicted that the cease in trading with Chosun (North Korea) will give rise to a food shortage.

The Ministry of Commerce of the People’s Republic of China announced the process of registration and 2008 conditions for registration for milled farming export quarter on the 19th and has implemented a method for the provisional food export of rice, corn, and flour starting January of this year. Related parties of North Korea-Chinese trade forecasted that food exports to North Korea will be reduced significantly as a result of the stringent food export conditions imposed by the Chinese government.

Orascom Telecom
(Hat tip to Werner)
1/30/2008

Orascom Telecom Holding S.A.E. (“OTH” or “Orascom Telecom”) announced today that it has been granted the first commercial license to provide mobile telephony services in the Democratic People’s Republic of Korea (“DPRK”) using WCDMA (3G) technology.

The license was granted to OTH’s subsidiary CHEO Technology JV Company (“CHEO”) which is controlled by Orascom Telecom with an ownership of 75% while the remaining 25% is owned by the state owned Korea Post and Telecommunications Corporation. The terms of the license allows CHEO to offer services to its customer throughout the country, the duration of the license is 25 years with an exclusivity period of four years. Orascom Telecom intends to invest up to US$400 million in network infrastructure and license fee over the first three years in order to rapidly deploy a high quality network and offer voice, data and value added services at accessible prices to the Korean people. OTH intends to cover Pyongyang and most of the major cities during the first 12 months of operations.

The DPRK has a population of approximately 23 million of which 67% is between the age of 15 and 64 years, moreover, there is currently no mobile services in the country. The operation in the DPRK will complement OTH’s existing operations in Asia and will further enhance OTH’s position as the leading GSM operator in the emerging markets.

Naguib Sawiris, Chairman & CEO, Orascom Telecom, stated “We are continuing to head in the right strategic direction; our Greenfield license in the DPRK is in line with our strategy to penetrate countries with high population and low penetration by providing the first mobile telephony services. OTH has consistently proved its ability to successfully roll out mobile services into countries where no other operator has. OTH will continue to increase shareholder value and maintain its leadership in the markets it operates in.”

About Orascom Telecom
Orascom Telecom is a leading international telecommunications company operating GSM networks in six high growth markets in the Middle East, Africa and South Asia, having a total population under license of approximately 430 million with an average mobile telephony penetration of approximately 37% as at September 30th 2007. Orascom Telecom operates GSM networks in Algeria (“OTA”), Pakistan (“Mobilink”), Egypt (“Mobinil”), Tunisia (“Tunisiana”), Bangladesh (“Banglalink”), and Zimbabwe (“Telecel Zimbabwe”). Orascom Telecom had reached approximately 65 million subscribers as at September 2007.

Orascom Telecom is traded on the Cairo & Alexandria Stock Exchange under the symbol (ORTE.CA, ORAT EY), and on the London Stock Exchange its GDR is traded under the symbol (ORTEq.L, OTLD LI).

November 12, 2007

The latest edition of the CanKor Report has only one longer-than-usual item.  It is the preparatory document of a workshop recently held in Seoul, Korea, in which NGOs, academics, practitioners and diplomats from Europe, Asia, Australia and North America consulted about the prospects for international cooperation regarding education and training programmes that need to be undertaken with the DPRK if denuclearization proceeds according to the Six-Party timetable.  Experts in economic development believe that the next step in international engagement will have to be the building up of DPRK expertise and intellectual capacity to absorb the significant development assistance that may follow successful completion of the Six-Party process. In this working paper, loyal CanKor reader and former World Bank official Bradley Babson defines “knowledge sharing”, explains why the time is ripe for all sectors to become involved, outlines potential pitfalls, and suggests guiding principles for future engagement by the international community.
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Contents:

1.   KNOWLEDGE SHARING WITH THE DPRK
    Bradley O. Babson, CanKor original
       Introduction
       Why knowledge sharing?
       Strategic considerations
       DPRK internal challenges
       Nuclear politics
       Inter-Korean reconciliation
       China, Russia and Northeast Asia regional perspectives
       Operational challenges in the DPRK context
       An underlying tension
       Relationships
       Information
       Absorptive capacity
       Coordination
       Resources
       International experience and best practices
       Conclusions and principles for future engagement
*************************************************

(more…)

Daily NK
Yang Jung A
1/25/2008
 
A job in a factory at the Kaesong Industrial Complex is fast becoming the ideal job for North Korean citizens, and positive feelings toward the South are continuing to grow.

Good Friends reported on the 23rd that most North Koreans are aware that economic cooperation at Kaesong is thriving as South Korean enterprises supply advanced materials and management, and North Korea supplies labor.

“South Korean advisory managers supervise workers. If workers do not come to work on time in the morning or they do not work diligently, the managers simply say, ‘You don’t need to come here tomorrow’” reported one North Korean citizen through Good Friends.

The citizen added, “Workers try to complete their appointed tasks under all conditions, while monitoring the South Korean supervisors’ attitudes.”

As the Kaesong Complex grows, the internal customs procedures into Kaesong become more complicated.

Good Friends reported, “Kaesong was originally a strictly controlled zone because of its location just north of the 38th parallel. If a North Korean wanted to visit Kaesong, they had to register, undergo an investigation and get a pass. Now, If they try to go to Kaesong, the process is much more complicated.”

A cadre working at the Kaesong Complex said that this is because people have growing positive feelings toward South Korea. The authorities worry about the great gap between the North and the South and worry about growing public disillusionment.”

He added, “The only place people can talk about South Korea is at Kaesong. They have a yearning for South Korea, especially after they’ve encountered South Korean products.” 

Good Friends claims that a prestigious local politician has been executed for his bourgeois lifestyle…

(excerpt)  A cooperative farm chief who was once honoured by North Korea’s founding president has been publicly executed for starting a private farm to support his luxurious lifestyle, a South Korean aid group said Thursday.

The unidentified man — said to be a member of the national legislature — and two colleagues were put to death by firing squad on December 5 in Pyongsong City, 30 kilometres (20 miles) north of Pyongyang, the Good Friends group quoted sources as saying.

The farm chief, his accountant and the local county’s party secretary were accused of selling produce from an unauthorised farming operation to lead a luxurious lifestyle, said a newsletter from the group which provides aid to the hardline communist state.

The farm chief was accused of failing to register 196 acres (79 hectares) of farmland that had been cultivated over the past decade. He allegedly fed retired soldiers with the produce and used them as his private bodyguards.

The man “acted like a king” in Mundok County and had been deemed untouchable because of his status and the gang of retired soldiers who followed him everywhere, Good Friends said.

All those put to death were said to have lived in upmarket two-storey homes and driven illicit cars.

Read the whole story in the AFP here
1/3/2008