Overview of the DPRK Marketplace
The Democratic People’s Republic of Korea is a frontier marketplace with significant potential due to multiple factors. It is bordered by several of the World’s largest economies, China, Russia and South Korea, with Japan a relatively short distance away, the DPRK is ideally located and positioned for significant economic growth.
It has been known for many years that the mineral reserves of the DPRK are significant. However due to a lack of capital expenditure these reserves have only operated to a fraction of their capacity to date.
In 2009, Goldman Sachs published a research report which scheduled DPRK’s mineral reserves, which at today’s price equates to a gross value of approximately $6 trillion. In 2012, Kores, the South Korean state mining company stated that they believed the rare earth reserves in the DPRK were alone worth approximately $6 trillion (the 2009 Goldman Sachs report did not include rare earths). The mineral reserves of the DPRK are hugely significant, and this combined with a willing highly educated work force, a desire by the Government to induce foreign investment, and the DPRK’s proximity to some of the World’s largest economies will underpin significant economic growth.
This is verified by some recent statistics on economic trends, Statistics Korea reports that Chinese trade with North Korea totalled $5.63bn in 2011 (up 284% from 2007), and exports to China totalled $2.46bn in 2011 (up 424% from 2007).
According to the Korea Trade-Investment Promotion Agency, better known as KOTRA, North Korea’s overall trade reached US$6.81 billion in 2012, growing 7.1% from a year earlier and reaching a record high since 1990 when such data began to be compiled. The North’s overall exports gained 3.3% on-year to $2.88 billion with imports surging 10.2% to $3.93 billion. Still, the North’s trade relations with China strengthened with the countries’ bilateral trade reaching $6.01 billion, accounting for 88.3% of the North’s overall trade in 2012.
North Korea is attracting foreign companies, Chinese, South Korean, and about 30 European companies have invested in copper and gold mines, factories producing medications and blue jeans, and even Internet services.
North Korea’s only mobile operator, Koryolink, is about to hit 2 million subscribers, its CEO Ezzeldin Heikal told diplomats and NGO workers in Pyongyang in April. Koryolink launched services in North Korea in 2008 and took more than three years to sign up its millionth subscriber. It has now doubled that number in just 14 months. Egypt’s Orascom Telecom Media and Technology Holding, owns 75% of the company and enjoys profit margins of 80%. In fact Orascom sets a precedent for foreign companies as it trades on both the Egyptian Stock Exchange and the London Stock Exchange. Two Hong Kong-listed companies operate casinos for tourists. France’s Lafarge owns 30% of a cement plant that employs 3,000 workers. German-backed outsourcer Nosotek offers North Korean programming help to Western companies developing cell-phone games. A Swedish group markets Noko Jeans, made in the North.
Some $6.5 billion of further investment is in the works as Chinese infrastructure companies plan new ports, highways, and power plants, according to the Samsung Economic Research Institute, a think tank in Seoul.
The North has become a magnet for Chinese enterprises. Of the 138 Chinese companies registered as doing business in North Korea, 41% extract coal, iron, zinc, nickel, gold, and other minerals, according to the U.S. Korea Institute at Johns Hopkins University.
North Korea will offer a 50 year lease on land for the economic development zones it wants to set up across the country to spur outside investment. The 50-year scheme for development zones is on par with land lease favours offered by Pyongyang to businesses operating in the Kaesong Industrial Complex and the Rason Economic and Trade Zone. Kaesong is on the west coast just north of the demilitarised zone, while Rason is located in the country’s north eastern region near the border with China and Russia. Companies will be able to freely buy and sell rights on buildings and land in the economic zones and even hand over property deeds with a clause being fixed that can allow the present rights holder to release it to a third party. Development of land leased can be assisted by North Korean state organizations and companies. Pyongyang has set corporate tax rates for these zones at 14% of earnings after the settlement of accounts, with the government pledging the safety of all foreigners in the special zones under North Korean law. The report said that all authority for the new development zones will be given to a centralised economic oversight organisation to make it easier for investors to talk to authorities and receive administrative assistance.
HB Oil JSC, an oil trading and refining company based in Ulaanbaatar, Mongolia, said recently that it acquired 20% of the state-run entity operating North Korea’s Sungri refinery. It intends to supply crude to Sungri, which won’t be fully operational for up to a year, and export the refined products to Mongolia. The deal will be the first purchase by a Mongolian-listed company of a foreign asset, according to Joseph Naemi, chief executive officer of the Ninox parent, Ninox Energy Ltd. The company is in compliance with current international sanctions levied against North Korea, he said. North Korea has three onshore oil basins with “proven working petroleum systems” and the country is conducting exploration for new fields, BDSec brokerage, Mongolia’s largest and the underwriter of the bonds HB Oil plans to offer, said in a recent note to investors.
In June, President Vladimir Yakunin and North Korean Minister of Railways Jon Kil-su signed a protocol on reconstruction of the Khasan – Rajin line, following talks in Moscow. They reported that the rebuilding work was ‘in its final stages’. The protocol outlines plans to create a single control centre for the entire North Korean rail network. This will be created with participation from the RasonKonTrans joint venture of Russian Railways Trading Company and the port of Rajin, as well as the North Korean Ministry of Railways. The rebuilding project involves laying 54 km of dual-gauge track (1 520 mm and 1 435 mm), the reconstruction of three tunnels, the repair of a bridge over the border, and the construction of a freight terminal in Rajin port with a capacity of 4 million tonnes per year. The work sits in the context of the framework of co-operation between Russia and North Korea. It is also part of a wider ambition to revive transit freight on the Trans-Korean main line.
Again in June of this year it was reported that Chinese engineers are working around the clock on a project that could transform the economic—and geopolitical—dynamics of the region: a 223-mile, high-speed rail link to the North Korean border. The $6.3 billion project is one of three planned high-speed railways designed to bring North Korea closer into China’s economic orbit. China is also investing millions of dollars into new highways and bridges in the area, and the first cross-border power cable.
China is pressing ahead with ambitious plans to expand trade, investment and infrastructure around its North Korean border to provide incentives to Pyongyang to launch Chinese-style market reforms. When it is finished in 2016, the railway under construction near Yanji will cut the journey between the Chinese city of Jilin and the remote border town of Hunchun to just over two hours from almost eight, according to the project’s plans. By 2020, it is expected to boost Hunchun’s population to over one million from 200,000 today thanks to an influx of migrants seeking to profit from border trade. Work is also continuing on a rail link between the Chinese cities of Shenyang and Dandong—the busiest border crossing—and another connecting Dandong to the Chinese port of Dalian is also due to be finished this year, according to state media. A new $356 million bridge over the border at Dandong is also proceeding as planned.
In China’s eyes, the three high-speed rail links are an integral part of a strategy that is explicitly linked to North Korea. The strategy is also intertwined with China’s plan to promote development in its northeast by establishing road and rail-transport corridors to Mongolia, Russia and North Korea, and giving Jilin province access to the sea via the North Korean port of Rason, which is in a special economic zone. Chinese experts who have studied the plans, and advised the government on them, said they had been unaffected by the latest crisis, and in some areas, had accelerated. “We’re pushing it forward even faster,” said Professor Zhang Qi of the China Development Research Institute, which has studied the plans. “Our hope is to encourage North Korea to begin the process of reform and opening up.”
The first tarmac road between Hunchun and Rason was completed last year. It cut the journey time from about three hours to just 45 minutes, according to one person who has travelled on it recently. China has also approved a plan to build a 61-mile transmission cable connecting Rason to China’s state electricity grid in Hunchun, according to a statement from the local government in March. That will be the first time China’s state grid has provided power directly to a foreign country, according to state media reports and Chinese experts.
“A North Korean delegation to discuss economic cooperation with China, took place earlier this year, and in the same month, China announced the establishment of a 3 billion Yuan ($490 million) fund to invest in North Korea.”
The above clearly demonstrates despite international sanctions that the DRPK is making clear economic progress and that its closest neighbours are preparing for significant economic growth. These are only a few of the recent economic developments , in addition a Ski-Resort is now being built, as is a beach resort in Wonsan Bay, additional indications that the DPRK are preparing for an influx of tourism.
The Democratic People’s Republic of Korea is a frontier marketplace with significant potential due to multiple factors not least of which is the potential unification with South Korea which has $1.2 trillion of GDP.