North Korean Economy Watch

A new year has begun, so most DPRK watchers are analyzing Kim Jong-un’s new year address (a return to a practice established by Kim Il-sung which was replaced by the “joint editorial” in the Kim Jong-il era). I have compiled most of the good analysis of the speech below.

First of all, you can watch the full speech here (in Korean):

You can read the full speech on KCNA here (English, Korean). For those of you who cannot access KCNA, click here to read a PDF of the speech in English and Korean.

Commentary:

38 North and here

New York Times

Washington Post

Institute for Far Eastern Studies

Yonhap and here

Choson Exchange

Stephan Haggard

Council on Foreign Relations

Nautilus Institute

Hankyoreh

New Focus International

Evans Revere

Yonhap announced that the ROK is allowing private aid groups to send goods to the DPRK. The article also mentions the total volume of the ROK’s official and private assistance to the DPRK in 2013.

According to the article:

South Korea endorsed private humanitarian aid to North Korea on Monday, an official said, in the latest assistance to Pyongyang despite lingering tensions on the Korean Peninsula.

The two private aid groups are allowed to ship nutritional and medical supplies worth 240 million won (US$227,000) to infants, children and people suffering tuberculosis in the North, unification ministry spokesman Kim Eyi-do told reporters.

The planned aid brought the total amount of assistance to the North by South Korea’s private aid groups to 6.8 billion won since February when President Park Geun-hye took office in Seoul.

South Korea has also shipped aid worth 13.5 billion won to the North through international organizations since February.

All posts on South Korean assistance to the DPRK in 2013 can be found here.

All posts on aid to the DPRK can be found here.

All posts on aid to the DPRK that have statistics can be found here.

Read the full story here:
S. Korea approves private humanitarian aid to N. Korea
Yonhap
2013-12-30

According to a recent article in Yonhap, the DPRK has established a new body to facilitate investments from overseas Koreans.

According to the article:

North Korea has established a government agency to facilitate investments in the communist nation by overseas Koreans, with its services to get into full swing by January, an official was quoted Sunday as saying.

Pyongyang established the “economic cooperation office for overseas Koreans” in August to provide support and guidance for investments from Koreans living overseas, the agency’s chief, Pak Kyong-jin, said in an interview with Minjoktongsin, a pro-North Korean website operated by a U.S.-based Korean.

The agency’s establishment is part of efforts to rebuild the economy, Pak said.

“An increasing number of overseas Koreans have been visiting the North to discuss investment issues. We have established the agency to handle these issues exclusively,” he was quoted as saying, adding that the agency will begin operation in earnest in January.

Pak said he would advise potential investors to focus on construction and light industries for the time being, rather than resources development projects that require massive amounts of capital.

I have been unable to locate any articles about this organization in KCNA or Naenara.

The DPRK also has the State Economic Development Commissio/Association for managing special economic zones/economic development zones (except for Hwanggumphyong, Rason, Kumgang, and Kaesong which have their own management committees), and the Joint Venture Investment Company for managing joint venture investments outside of the SEZs (presumably from non-Koreans). There is also a little known group called the Peach Economic Development Group which was recently announced. Their specific jurisdiction is unknown.

It is unclear what relationship (if any) this new organization has with these other offices.

You can read the full article here:
N. Korea establishes agency handling investments from overseas Koreans
Yonhap
2013-12-29

According to Yonhap:

North Korea’s grain production is expected to rise slightly this year, a report said Friday, possibly higher than initially estimated.

According to the report from South Korea’s Rural Development Administration (RDA), the North’s overall grain production in the 2013-2014 harvest year is expected to reach 4.81 million tons, up 3 percent from 4.68 million tons tallied in the 2012-2013 period.

The rise comes partly from an increase in rice output, which is estimated to gain 2.9 percent on-year to 2.1 million tons.

The figure has a gap with an earlier estimate from the U.N. Food and Agriculture Organization (FAO), which forecast the communist state’s rice output to reach 1.7 million tons this year, slightly better than the annual average of 1.6 million tons.

“The weather in North Korea this year had been more favorable to the growth of crops (than last year) as the average temperature between May and September came to 19.9 degrees Celsius, 0.3 degrees higher than that of last year, while the country’s overall precipitation also rose 7.5 percent on-year to 1,001.5mm over the cited period,” the RDA said in its report.

The report said the North’s corn output was also expected to have gained 1.7 percent on-year to 1.76 million tons this year. The FAO earlier forecast the North’s corn output to reach 2.3 million tons.

North Korea suffers from chronic food shortages with the average amount of rice and corn consumed by the people said to be only half of the daily consumption recommended by the United Nations.

Read the previous post on the UN food assessment report here.

Read the full story here:
Report says N. Korea’s grain production likely to grow this year
Yonhap
2013-12-27

According to the Daily NK:

Approximately two months prior to the purge of Jang Sung Taek, the North Korean authorities halted exports of gold ore from the mines of Hwanghae Province in the southwest of the country, Daily NK has learned.

The step allegedly followed the discovery of improprieties in the operation of mining enterprises managed by persons linked with Jang, and formed part of measures designed to bring foreign currency-earning activities en masse under strict Central Party control.

“The order to halt exports was handed down in October, some months before the official news of the purge of Jang Sung Taek,” a source involved in the industry told Daily NK on the 27th. “It was even applied to foreign currency-earners affiliated with Central Party organs, as well as those from normal provincial-level agencies.”

“A directive ordering operations to cease from the second half of the year was issued to Holdong and Eunpa mines in Yeonsan County, North Hwanghae Province. These mines are shut now and their shafts are just filling up with water,” the source went on. “Mine officials have told me that this order came down stating that neither provincial nor Central Party managed-enterprises were allowed to mine for gold.”

“By doing this just a few months before the Jang Song Taek purge, the authorities moved to integrate foreign currency-earning activities and confiscate those enterprises and funds formerly managed by Jang prior to his purging,” he added. Explicating his view of the logic behind the step, he went on, “[The authorities] wish to greatly reinforce their control over these foreign-currency earning enterprises’ resources so as to bring together the management of Kim Jong Eun’s ruling funds.”

“I am told that they discovered that the enterprises Jang was managing had not been passing their profits to the state in the prescribed manner, so they halted the trade completely” the source alleged. “They controlled the mines, saying that the reason was because Jang was flogging off natural resources for a low price.”

“Previously, only ore with a purity of 20-30g of gold per ton could be exported, so any ore with a lower purity than this was not controlled. But now they are stopping all gold ore from exiting,” he went on to explain, adding that the ban is causing serious problems for the region’s miners, many of whom rely in large part on income from the mines for their survival.

“They used to share export licenses with other enterprises and export ore that way, too, but right now that is also totally prohibited,” he added.

Read the full story here:
Gold Mining Stopped to Unify Funds
Daily NK
Oh Se Hyeok
2013-12-27

Institute for Far Eastern Studies (IFES)
2013-12-27

In an effort to restore the mood of economic development following the ‘terror politics’ created from the execution of Jang Song Thaek, North Korean state media is beginning to emphasize “construction of a powerful economy” and “improvement of people’s lives” once again.

Rodong Shinmun reported on December 19, 2013 that all fields reached their production plans for the year, describing (on page 3) exemplary cases of various party organizations that upheld the legacies of Kim Jong Il and “displayed best practices that actively contributed to improving people’s lives.”

In one article (“Advancement in Science and Technology Is the Lifeline of Constructing a Powerful Economy and Improving People’s Lives”) the importance of science and technology was emphasized. It claimed, “breakthrough in science and technology is the best way to achieve a miracle and innovation in production while protecting the dignity of the nation in the era of knowledge economy.”

Korean Central Television, Korean Central Broadcasting, and Pyongyang Broadcasting encouraged its people to realize “new miracle, new record” in the production fields emphasizing the goals of the Kim Jong Un regime, “construction of economic powerhouse,” and “construction of civilized socialist nation.”

In addition, the military was presented with modern fishing boats. Kim Jong Un’s gift to the military may be interpreted as a display of interest in improving the welfare of soldiers. Kim Jong Un was reported to have made an on-site inspection at the “8.25 Fishery” military unit and expressed interest in the welfare of the soldiers.

Kim Jong Un is also continuing to commend “best citizens” as he delivered letters of appreciation to recognize those that displayed exceptional performance at the construction sites of Sepho Tableland and the residential complex for Kim Il Sung University (KISU) faculty members.

In the Kim Jong Un era, state media is continuing to emphasize the achievements in the construction sectors, calling these times a “new heyday of juche construction.” It listed last year’s construction achievements: completion of Changjon Street, People’s Theatre, Pyongyang Children’s Department Store, Rungra People’s Pleasure Park, People’s Outdoor Skating Rink, Pyongyang Folk Park, and Ryugyong Health Complex.

In addition, it boasted that Munsu Water Park was “miraculously” completed in only nine months. Other achievements were listed: War Memorial, Mirim Riding Club, Ryugyong Dental Hospital, Okryu Children’s Hospital, Unha Scientists Street, and KISU faculty apartment complex.

North Korea is propagating these achievements, heralding the Kim Jong Un era as the “glory days of construction” to promote his accomplishments and consolidate his power base.

During his own period of succession, Kim Jong Il sought the support of the masses by emphasizing construction of Changgwang and Munsu Streets and landmarks such as Juche Tower, Kaeson Mun (Gate of Triumphant Return), and Pyongyang Maternity Hospital.

UPDATE: I got the official exchange rate wrong in the initial post. I have corrected it.

ORIGINAL POST: A couple of weeks ago news came out that Orascom was holding off further investment in the DPRK until it was able to repatriate some of its profits. A few days later Orascom issued a press release denying this and asserting that they are looking for new investment opportunities in the DPRK.

This correction raises questions about just how significant Orascom’s profits in the DPRK are. Information on the growth of KoryoLink has been scarce since it was spun off into a subsidiary company (it no longer appears in Orascom shareholder reports). Martyn Williams did us all a favor, however, and found the Jan-Sept 2013 audit for Orascom Telecom Media and Technology Holding (OTMT), the company now holding the KoryoLink portfolio.

I have uploaded the audit to this site, and you can download it here (PDF). It contains the consolidated financial reports for OTMT, including KoryoLink.

The audit is posted as an image PDF (so the text is not searchable or easily copied into blog posts), but I offer some key data below. The caveat to keep in mind is that all of the USD$ calculations appear to be determined by converting DPRK Won (KPW) at the official rate (appx 100KPW/1US$ and 130KPW/1 Euro). This may be the appropriate accounting standard to employ, but needless to say, this radically overstates the market value of the firm’s position since the current black market rate of the won is approximately 8,000KPW/1US$:

US$422 million is $42.2 billion North Korean Won (converted at the official rate). Converted back to US$ at the black market, the total is just US$5,275,000.

OTMT EBITDA (Earnings before income tax, depreciation, amortization) for the period Jan-Sept 2013 are listed as USD$178,962,000. This is just  US$2,237,025 million at the black market rate.

Capital expenditure from Jan – Sept 2013 is listed as USD$40,931, 000 (Appx $665,128 at black market rate).

KoryoLink’s tax exempt status ended on Dec 15, 2013.

The audit specifically addresses the difficulties of operating in North Korea’s official financial sector:

Some additional documents from June of this year can be found here and here. I am not an accountant and already have enough on my plate, so if there are any researchers out there that want to take a crack at this stuff, please do.

According to Yonhap:

Trade and economic levels between South and North Korea remained quite wide last year, data showed Monday, pointing to prolonged lackluster business and economic conditions in the reclusive North.

According to the data by Statistics Korea, South Korea’s total trade volume stood at US$1.07 trillion as of 2012, which is 157 times larger than the North’s $6.8 billion. In particular, the South’s exports came to $547.9 billion, 188.9 times larger than those of the North.

The nominal gross national income (GNI) levels between the two Koreas also remained wide.

The GNI for the South was estimated at 1,279.5 trillion won ($1.21 trillion) last year, 38.2 times larger than the North, the data showed. On a per-capita basis, South Korea’s GNI was 18.7 times larger than that of the North.

South Korea also outperformed the North in infrastructure and other social overhead capital spending.

The South’s road network totaled 105,703 kilometers, which compared with the 26,114 km for the North, the data showed. The South had the power generating capacity of 81.8 million kilowatts a year, which is 11.3 times larger than the North.

The only category that the North outperformed the South was in coal production. It produced a total of 25.8 million tons of coal last year, about 10 times the amount of coal produced by the South, according to the data.

The two Koreas had a combined population of 74.4 million, with the South holding a population of about 50 million, the data showed.

The statistics agency has been providing such information on the North every year since 1995 as a way to provide a glimpse into the economic and industrial conditions of the reclusive country.

Read the full story here:
Trade, economic gaps between 2 Koreas remain wide: data
Yonhap
2013-12-23

According to the Associated Press:

North Korea allowed about 30 foreign government officials, central bankers and diplomats to tour the industrial complex in Kaesong. The foreigners were in Seoul, South Korea, for a conference of the Group of 20 countries.

…

“This is an authoritarian regime with a very nasty way of punishing anybody … who is against the regime,” said Paola Subacchi, director of international economics research at Chatham House, an independent policy institute based in London. “There’s no transparency, no accountability, nothing that could make an international investor happy and willing to invest.”

But Subacchi said the complex’s expansion might bring positive changes to North Korea because it would provide jobs and help feed North Korean workers and their families.

Hong Yang-ho, South Korean chairman of the committee that oversees management of the park, estimated the complex would create jobs for about 120,000 North Korean workers if it is fully occupied with factories. About 40 percent of the complex is currently being used.

The industrial park combines South Korean capital and technology with cheap North Korean labor. Currently around 53,000 North Koreans are working in the complex at some 120 companies. North Korea is estimated to have received $80 million in workers’ salaries in 2012, an average of $127 a month per person, paid in U.S. dollars, according to South Korea’s Unification Ministry.

The invitation to visit Kaesong was the first concrete step that the two Koreas have taken toward opening the complex to overseas investors since they agreed to restart the park in September.

Operations had been halted in April when North Korea withdrew its workers amid tension over its threats of nuclear war. The complex reopened after North Korea toned down its rhetoric and began pursuing diplomacy with South Korea.

The two Koreas also agreed to work toward attracting overseas investment and discuss other ways to improve business, including better communication and allowing people and goods to move more freely to and from Kaesong.

…

Domenico Lombardi, a think tank director, said he would not build a factory in Kaesong if he were a businessman because of the risks and high uncertainty.

But he said it was a positive sign that North Korea was eager to show the park to foreigners.

“This is the first step of what a more open North Korea would be one day,” said Lombardi, director of the Global Economy program at the Center for International Governance Innovation, based in Ontario, Canada.

The next challenge for North Korea will be “making their own economy more accessible to foreign investors,” Lombardi said.

Read the full story here:
Inter-Korean Factory Park Tough Sell to Outsiders
Associated Press
Youkyung Lee
2013-12-19

According to the Daily NK:

It is believed that representatives from Excellence Mineral Manufacturing Co., Ltd and Soe Min Htaeik Co. recently met with North Korean authorities to facilitate the import of military supplies for use in North Korea’s state-run weapons program.

A third company, Asia Metal Company Limited, is thought to have constructed factory facilities for use by the Myanmar Directorate of Defense Industries (DDI).  It is estimated that around thirty North Korean nationals are currently employed on the site.

Lt. Col. Kyaw Nyunt Oo of the DDI was the only individual added to the list.

Information on OFAC’s Specially Designated Nationals List (SDN) can be found here.

Here is a link to the SDN List Sorted by OFAC Sanctions Program (Search for DPRK)

Here is a link to the SDN List Sorted by Country (Search for Korea, North)

Read the full story here:
NK Weapons Suppliers Added to Sanctions List
Daily NK
Jin Dong Hyeok
2013-12-19