North Korean Economy Watch

Lankov on DPRK social change

March 3rd, 2009

Writing for the American Enterprise Institute, Andrei Lankov argues that neither sanctions nor direct engagement will change the North Korean system. Quoting from the summary of his paper:

North Korea must be transformed from within. Neither sanctions nor direct engagement will work. What is needed is an effort to increase contacts between North Korea and the outside world through cultural and educational exchanges and through economic cooperation that exposes North Koreans to South Koreans and their vastly better way of life. Increased radio and video penetration combined with support for defectors who can aid the transformation when the Kim Jong Il regime ends will also be necessary.

Dr. Lankov’s paper can be read here.

A PDF can be downloaded here.

Read the rest of this entry »

Posted in Political economy | 4 Comments »

DPRK feeling some effects of global econ downturn

March 1st, 2009

The global financial crisis/recession is affecting some of the DPRK’s most visible assets.

The first example comes from the Kaesong Industrial Zone, where South Korean firms are obliged to pay North Korean workers’ wages in $US directly to the North Korean government. Since the South Korean Won/$US exchange rate has risen significantly in recent months, companies in the Zone have seen their labor costs (denominated in $US) soar. Since wages are fixed and firms are unable to lay off workers, some have responded by simply not paying wages—which does not affect the workers so much as it does the North Korean government’s finances, since it keeps most of the funds.

Quoting from Radio Free Asia:

Authorities in North Korea have warned South Korean companies in its Kaesong industrial area they must pay workers’ wages or face fines, as many investors begin to feel the effects of the economic downturn.

Lee Lim-dong, secretary general of the Committee of the Association of Enterprises Invested in the Kaesong Industrial Complex, said the issue of unpaid salaries was brought up late last year but had now become a formal demand.

“This time around, official notification was issued to all South Korean enterprises invested in Kaesong, through the Kaesong Industrial District Management Committee (KIDMC),” Lee said.

South Korean businesses invested in Kaesong have already incurred serious losses due to the depreciation of the South Korean won against the U.S. dollar, according to Kim Kyu Chol, head of the Forum for Inter-Korean Relations, a Seoul-based group monitoring inter-Korean business relations.

“They already have to spend 30-45 percent more on labor [because of this],” he said, adding that the lives of South Korean entrepreneurs in the Kaesong economic zone would now be even more difficult.

…

According to Park Yong-man, director of Green Textile Co.—a South Korean company invested in Kaesong—“The official notification was sent to all South Korean companies in Kaesong on Feb. 10.”

Meanwhile, Kim said, one South Korean electroplating company had already failed to pay its North Korean workers for more than three months and had been suspended.

Seven South Korean companies in Kaesong are currently unable to pay their North Korean workers on time and will soon be in bigger trouble because of the new measures, Kim said.

South Korean companies operating in Kaesong are not allowed to recruit or dismiss North Korean staff directly, and North Korean authorities impose quotas of staffing numbers on them.

In early February, North Korean officials said that salaries of North Korean supervisors watching over the night shift at South Korean enterprises in Kaesong would have to increase by 200-300 percent, putting further pressure on labor costs.

And companies can be suspended from operations for failing to pay their employees for more than a month.

Kim said South Korean companies in Kaesong don’t need more supervisors or clerical workers, which the North Korean side has sought.

“They are already facing a managerial crisis, and a [demanded] 50 percent increase in the number of North Korean managerial staff is pushing it too hard,” he said, adding that South Korean enterprises would find this hard to accept.

Until recently, the Kaesong Industrial District Management Committee (KIDMC), a joint North-South panel overseeing the complex, was responsible for half of the U.S. $10 a month transportation allowance given to North Korean workers in Kaesong.

North Korea demanded as of Jan. 1 that South Korea Kaesong companies must now pay the entire cost.

Now hard bargaining can pay off sometimes, especially for North Korea, but with all that has happened in the Zone recently it seems as if the DPRK actually wants these businesses to leave. The DPRK’s negotiators are smart enough to know that the pie is shrinking and they naturally want to protect their share, but unfortunately they don’t yet seem to appreciate that their actions will have serious ramifications on future investment in the Zone once the global economy turns the corner.

Example No. 2: Unfortunately, recent economic conditions have also reduced the number of South Korean tourists venturing abroad where they might enjoy diversions such as eating in a North Korean-owned restaurant.

Quoting from Japan Probe:

Ever since a North Korean government restaurant opened in Bangkok two years ago, the Japanese press have been regularly visiting the place with hidden cameras to catch a glimpse of its dinnertime performances. However, it has now been discovered that the restaurant recently went out of business.

Most of its business had come from South Korean tourists, but the weakening of the won and the decline in tourism to Thailand due to the airport protests seem to have dealt a death blow to the restaurant. Attempts to contact North Korea-run restaurants in Cambodia and Vietnam failed, suggesting that those restaurants may have also gone under. It has also been said that a similar North Korean restaurant in China has suffered a big drop in business.

Read the RFA article here:
North Korea Warning Over Labor
Radio Free Asia
J.W. Noh
9/26/2009

Posted in Fiscal & monetary policy, Kaesong Industrial Complex (KIC), Labor conditions/wages, Manufacturing, Restaurants, Special Economic Zones (Established before 2013), Thailand | 1 Comment »

International Crane Foundation

February 27th, 2009

On my last visit to North Korea in 2005, fellow Atlanta native Ted Turner was also in Pyongyang (not at the Yangakdo unfortunatley, but the centrally-located Koryo Hotel) working to secure the DMZ as a crane reserve. It turns out that this effort is fairly well organizaed and funded. Below, I have attached some articles, names, and organizations involved in this movement:

The International Crane Foundation

Since 1974, ICF has been involved in conservation efforts for the Korean Demilitarized Zone (DMZ), the three mile wide strip of land between the divided neighbors that provides a home during migration or winter for half of the world’s White-naped Cranes and a quarter of the world’s Red-crowned Cranes.

Conservation in Korea

“For more than three decades, I have been coming to Korea to see the cranes that spend the winter along the DMZ. About one-third of the world’s 2,500 Red-crowned Cranes depend on the DMZ and the nearby Civilian Controlled Zone (CCZ) as their only remaining sanctuary on the peninsula. The Cheorwon Basin in the central highlands has the greatest numbers of cranes, while smaller flocks live in the Yuen Cheon valley, the lower reaches of the Imjin River, and the tidal flats around Kangwha Island.

The Red-crowned Crane is an auspicious symbol of good luck and long life throughout the Orient and cranes worldwide are a symbol of peace. Now perhaps the Red-crowned Crane can be a flagship for the conservation of the DMZ.

I have always tried to help my Korean colleagues in their efforts to save that priceless strip of land that’s carpeted by a grasslands, wetlands, and forests restored by the creative forces of nature over more that a half-century. Although it has been exciting to see modernization sweep it’s magic wand over Korea, it is alarming that humans now have such power to transform landscapes so quickly.

If the remaining natural landscapes of the DMZ and the CCZ are to be saved for nature, Korean conservationists from all walks of life must join together in a united front to negotiate with those more interested in development. This is now possible through a movement started in 1996 by two Korean Americans, Dr. Ke Chung Kim (a scholar) and Mr. Seung-ho Lee (a businessman).

To promote the conservation of the DMZ, they created a non-governmental organization called the DMZ Forum. I am honored to serve on the Board of Directors.

Under the leadership of Mr. Hall Healy (an environmental planner), the DMZ has created a Coalition for the Conservation of the DMZ. Although this Coalition had its birth in the USA, its operation will be “Koreanized” with leadership from an effective and prestigious Korean citizen and supported by a coalition of individuals and organizations primarily from Korea, but also from other nations. Only through the power of partnership, can these treasures of nature from “The Land of the Morning Calm” be saved.”

Recently, ICF held an event. Here is the email they sent out (h/t Mike):

For years, hundreds of the magnificent Red-crowned Cranes wintered in lowland wetlands and organically-maintained agricultural fields in the DPRK. With the rise of chemical fertilization after the Korean War through its alliance with the USSR, crops were plentiful in the DPRK, and the field gleanings provided sustenance for the cranes. With the collapse of the USSR, the cheap source of fertilizer dried up, and after two decades of chemical dependence the organic farming methods had been lost. Hungry humans foraged for food where the cranes had once wintered. The cranes moved south, in and around the DMZ and the Civilian Controlled Zone (CCZ). These two zones, however, have been targeted by developers as potential sites for future cities. The plan for the re-introduction of wintering cranes in the DPRK addresses teaching the local people organic farming methods anew and relies on using captive cranes to attract wild cranes during their autumn migration.

Through collaboration among colleagues of the Korean University in Tokyo, the State Academy of Sciences in Pyongyan, Democratic People’s Republic of Korea (DPRK, or North Korea), BirdLife International, the International Crane Foundation, and Pisan Cooperative Farm of the DPRK, work is underway to restore the Red-crowned Cranes as winter visitors on the Anbyon Plain located in DPRK. The project began in the spring and summer of 2008, and it is hoped that it will lead to communication between the DPRK and the Republic of Korea on the conservation of red-crowned Cranes in both nations.

From the event’s web page:

Through collaboration among colleagues of the Korean University in Tokyo, the State Academy of Sciences in Pyongyan, Democratic People’s Republic of Korea (DPRK, or North Korea), BirdLife International, the International Crane Foundation, and Pisan Cooperative Farm of the DPRK, work is underway to restore the Red-crowned Cranes as winter visitors on the Anbyon Plain located in DPRK. The project began in the spring and summer of 2008, and it is hoped that it will lead to communication between the DPRK and the Republic of Korea on the conservation of red-crowned Cranes in both nations.

For years, hundreds of the magnificent Red-crowned Cranes wintered in lowland wetlands and organically-maintained agricultural fields in the DPRK. With the rise of chemical fertilization after the Korean War through its alliance with the USSR, crops were plentiful in the DPRK, and the field gleanings provided sustenance for the cranes. With the collapse of the USSR, the cheap source of fertilizer dried up, and after two decades of chemical dependence the organic farming methods had been lost. Hungry humans foraged for food where the cranes had once wintered. The cranes moved south, in and around the DMZ and the Civilian Controlled Zone (CCZ). These two zones, however, have been targeted by developers as potential sites for future cities. The plan for the re-introduction of wintering cranes in the DPRK addresses teaching the local people organic faming methods anew and relies on using captive cranes to attract wild cranes during their autumn migration.

Home make-overs: DPRK edition

February 27th, 2009

In the last twenty years, a number of 1960s-era, Soviet-style houses in the DPRK’s elite housing compounds have been upgraded into more “western-contemporary” housing. For example, compare Kenji Fujimoto’s 1989 Kangdong photo (below) with a 2004 image from Google Earth:

1989

2004

Judging from Google Earth imagery, this process is largely completed, though there still appear to be a few locations that that have not been remodeled. Looking at Onchon County (below) we can see that the reconstruction of old-style compounds was still under way as of 2005. The house on the left of both photos appears to already be upgraded in 2002, but by 2005 the unit on the right of the first photo (below) has been completely leveled. Reconstruction of this residence was probably underway into early 2006.

3/1/2002

3/2/2005

I do not know the calculus used to determine which residencies are updated, neither in degree nor order. I am also immediately unaware of which organization/s is/are responsible for construction/maintenance of these facilities. A KPA unit built Sihanouk’s palace on Lake Changsuwon, and it is reasonable to believe the same unit constructed in the above locations as well. If any readers have more information on this, please let me know.

UPDATE: (Hat tip to Mike) “The residences are either constructed on commission or they are presented to KJI, or some other CCKWP cadre, as a gift. KJI, his family, members of the Kang and Jang families, long time CCKWP members and select intelligence/security appartus officials are known to have designated homes.

The home are constructed by KPA construction units (like Changsuwon) in cooperation with civilian crews under the auspices of the Escort/Bodyguard Bureau. Some members of the civilian crews also work on the large monuments in the DPRK, and overseas. When the homes are built or renovated on commission, the financing comes from the CCKWP offices. A lot of the fixtures and furnishings are purchased through SOE’s or by discreet MOFA officers. A lot of these purchases are conducted in Beijing, Moscow, Geneva, Vienna and Paris. “

Not to draw to stark a comparison, but the reverse process is also evident through dated satellite photos. This warehouse/factory near the Bukchang Thermal Power Plant has clearly fallen into disrepair (and possible asset stripping) between 2002 and 2005.

7/7/2002

11/16/2005

Posted in Construction, Google Earth, Real estate | 2 Comments »

No More Hoarding Grain

February 26th, 2009

Daily NK
Jung Kwon Ho
2/26/2009

Hoarding grain, a major way for general farmers to substitute for the lack of public provisions, was barely possible during the latter-half of last year in Hwanghae Province, the breadbasket of North Korea, according to a source inside the country.

The source from South Hwanghae Province said, “It has become more difficult to hoard grains because the number of security guards on farms since late last year, and monthly house searches by the Province and counties, has made it much more difficult. The punishment for hoarding grain was strengthened; now hoarders are sent to long term reeducation camps.”

Hoarding grain has become a main tool for survival among general farmers since public provision has not been supplied consistently, if at all, in recent years.

Farmers steal grains right before harvest from the storage. From the perspective of the North Korean authorities it is stealing, but it is a lifeline for the people.

The average amount of hoarded grain was more than 20 kilograms in the past, but there were some households in Hwanghae Province that obtained one ton or more of grain. After that, the authorities’ countermoves became fiercer.

The source reported, “Now, farmers complain that it turns out that only guards can openly hoard grain.”

He explained that, “Farmers should receive a years wages according to their labor, but in reality the authorities exclude many parts of it for many reasons, so they can get merely 200,000 North Korean won, which is around three or four months living costs in North Korea.”

He added, “More than half the farmers eat porridge with floury corn and dried vegetables. In the situation where there are no provisions from the state, houses in which the whole family commits suicide can be found.”

Meanwhile, there is a rumor that 15-days’ rations will be distributed in regions of South Pyongan Province in February or March.

Posted in Agriculture, Food, General markets (FMR: Farmers Market), Public Distribiution System (PDS) | Comments Closed

Celebratory rations issued for Kim Jong il’s birthday

February 26th, 2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-2-26-1
2/26/2009

It has been reported that 2-3 day’s worth of special rations were issued to parts of North Pyongan and South Hwanghae provinces, including to those North Koreans working in the Kaesong Industrial Complex, to mark the February 16 birthday of Kim Jong Il.

For families with more than four members, 2 kilograms of rice and 2 kilograms of noodles, with corn making up the rest of the rations. Smaller families received a kilogram each of rice and noodles, in addition to corn. Recently, rations have been in very short supply, even on farms, so North Koreans have been very much looking forward to these special rations.

Since last year, the number of guards stationed at farms was increased sharply, along with increasingly more intrusive house searches, as the theft and consumption of food by those living on the farms was banned. Over the past few years, as the state failed to provide steady rations to the farmers and families on the agricultural plots, these farmers began stealing rice from the cooperative farms as a means to maintain their lifestyles.

However, in November and December of last year, inspections were carried out in cities and districts as grain management on farms was strengthened, leading to an increase in theft of foodstuffs. Those caught stealing would be dragged in front of labor authorities and often sentenced to confinement.

The districts receiving these special rations were all specifically chosen by North Korean authorities. Hweryong City, in North Hamgyong Province, is the hometown of Kim Jong Il’s mother, Kim Jong Sook, while the Samjiyon district, in Yanggang Province, is where Kim Jong Il claims to have been born. Kaesong was thought to have been chosen in order to propagandize the rations to the outside world.

One source reported that in 2006, an anti-socialist group emerged in the city of Hweryong, and that leaders of citizen groups were appealing, “It is difficult to live in our mother (Kim Jong Sook)’s hometown…Let’s all flee to China,” and since Kim Jong Il became aware of the uprising, special rations have been given on holidays and other special occasions. That said, currently, Kim Jong Il’s practice of gift giving continues to be aimed at the leading class in the North, with city and district Party secretaries also receiving gifts, along with central Party authorities. Gifts are also provided to state heroes and model laborers.

See previous posts on Kim’s birthday rations here.

See photos of Birthday rations from the Daily NK here.

Posted in Agriculture, Institute for Far Eastern Studies, Kaesong Industrial Complex (KIC), Political economy, Public Distribiution System (PDS), Songbun, Special Economic Zones (Established before 2013) | 2 Comments »

Inter-Korean trade down 20% in last year

February 26th, 2009

According to Asia Pulse Businesswire (Hat tip to Oliver):

Trade between South and North Korea declined 19.6 per cent in January from a year earlier, apparently hit by the slumping South Korean economy and frayed Seoul-Pyongyang relations, the South’s official data showed on Feb. 22.

Inter-Korean trade reached US$113 million in January, down from $140.5 million a year ago, marking the fifth straight monthly fall, the data made available by Unification Ministry in Seoul said.

“The decline in inter-Korean trade appears compounded by several factors like the slowing economic downturn and frozen relations between the two Koreas,” the ministry said in the data.

Inter-Korean relations have chilled since conservative South Korean President Lee Myung-bak took office a year ago, pledging to get tough on North Korea.

The South Korean economy is sharply slumping, due to tumbling exports and sluggish domestic demand. South Korea is widely expected to post negative economic growth this year, the first annual contraction since the 1997-98 Asian financial crisis.

Citation:
Inter-Korean trade dips 20 pct in January
Asia Pulse Businesswire
February 26, 2009
(Yonhap)

Posted in International trade, South Korea, Statistics, Trade Statistics | Comments Closed

McAskill seeking investors for Chosun Fund

February 24th, 2009

Bradley Martin writes in Bloomberg this morning:

A U.K. businessman is seeking to raise $50 million to invest in North Korea, reviving a 2005 plan after the U.S. government removed the communist regime from its list of countries that support terrorism.

ChosunFund Pte. Ltd. will join with North Korean partners for mining and energy projects, Colin McAskill, founder of the Singapore-incorporated fund, said in an interview.

“The country holds huge natural resources but is capital starved and lacks the technology and management skills with which to develop them,” McAskill said.

North Korea’s economy collapsed in the 1990s with the demise of communist regimes in Eastern Europe that had provided aid and favorable trade terms. McAskill scrapped the original fund after U.S.-imposed sanctions that led to a freezing of North Korean deposits at international banks.

The U.S. government removed the terrorist designation last October in exchange for wider scrutiny of North Korea’s nuclear weapons programs. U.S. Secretary of State Hillary Clinton said Feb. 20 that ties with North Korea won’t improve as long as it continues provocative verbal attacks on South Korea.

McAskill, 69, said he has been consulting on potential North Korean projects since 1987. While the country attracts one-off investment deals such as a recent contract licensing Orascom Telecom Holding SAE to provide wireless telephone services, it has struggled to raise money from global financial markets since defaulting on overseas debt in the 1970s.

London-based emerging markets money manager Fabien Pictet & Partners Ltd. was considering a fund that would invest in South Korean companies that do business with the North. The idea is “on hold for the time being,” Jonathan Neill, managing director, said in an e-mail.

Read the full story here:
North Korea Fund Seeks $50 Million After Terror Label Removed
Bloomberg
Bradley Martin
2/24/2009

Posted in Chosun Fund, Koryo Asia Ltd., Mining/Minerals | 1 Comment »

DPRK deepens reliance on China trade

February 24th, 2009

DPRK trade deficit with China nears USD$1.3 billion
Institutue for Far Eastern Studies (IFES)
NK Brief No. 09-3-5-1
2009-03-05

As North Korean dependence on trade with China continues to grow, the amount of overall trade hit a record high in 2008, however its trade deficit rose along with it. According to recent statistics released by China’s Customs Bureau and the Ministry of Commerce, trade between the DPRK and PRC in 2008 was worth a total of 2.78 billion USD, a 41.2 percent increase over the mere 1.97 billion USD recorded in 2007.

DPRK exports to China were worth 750 million USD, a 29.7 percent rise, while imports from China totaled 2.03 billion USD, up 46 percent, which led to a record 1.28 billion USD trade deficit. Mineral resources accounted for more than half (54.7 percent) of North Korea’s exports to China, while the majority of imports were machinery and electronic goods.

The North’s trade deficit with China has continued to grow for the past five years straight. In 2004, the North’s trade deficit was a mere 210 million USD, but this more than doubled, to 580 million USD, in 2005, rose to 760 million USD in 2006, and then hit 810 million USD in 2007. The reason for the sudden jump in the North’s trade deficit appears to be the globally rising cost of raw materials, and therefore Pyongyang’s trade deficit is expected to continue to rise rapidly in the near future.

This deficit is exacerbated by the North’s isolation from the rest of the international community, leaving it little choice but to continue trading at prices set by the Chinese. With the currently frigid relations between Pyongyang and Seoul, and the deadlock in 6-Party Talks, tensions on the Korean Peninsula make it increasingly difficult for North Korea to trade with other countries, so its dependence on China and Chinese goods is expected to continue to grow.

And according to the Choson Ilbo:

Trade between North Korea and China totaled US$2.78 billion last year, up 41.2 percent from $1.97 billion in the previous year, according to the statistics released on Monday by the China Customs and China’s Ministry of Commerce. North Korea’s imports topped $2.03 billion, up 46 percent from the previous year, but its exports stood at $750 million, up only 29.7 percent.

As a result, North Korea’s trade deficit with China reached a record high of $1.28 billion, up a whopping 57.7 percent from $810 million in 2007. It has been rising steadily from $210 million in 2004.

Mineral resources accounted for 54.7 percent of the North’s exports to China, while machinery and electronic equipment took up the biggest portion of imports.

The figures are attributable to the drastically increased prices of raw materials and the North’s deepening dependency on China. “North Korea’s dependence on China appears to be rising steadily because foreign countries other than China are reluctant to trade with the North because of strained inter-Korean relations and the stalled six-party talks,” said a North Korea export in Beijing diplomatic circles.

Read the full article here:
N.Korea’s Reliance on China Trade Deepens
Choson Ilbo
2/24/2009

Posted in China, Institute for Far Eastern Studies, International trade, Statistics, Trade Statistics | Comments Closed

Expansion of Pyongyang’s east market

February 23rd, 2009

The newest version of Google Earth allows the user to scroll backwards in time to see how a specific area has changed over the years. Although the satelite imagery available for North Korea needs to be expanded, by utilizing the current stock of photos we can uncover some interesting developments.

Below is an example—a bird’s eye view of the expansion of Pyongyang’s eastern market (click on images for full size):