Pyongyang tests market skills with nibbles
By Ting I-Tsai
TAIPEI - Chocolate. Instant noodles. Potato chips. Even soda. Items that are
commonplace in much of the world are seen as luxuries in North Korea. Yet amid
a famine that has battered its Stalinist economy for the past two years, the
country has started production of such snacks and beverages as part of the
regime's determined efforts to make its own products in pursuit of a mission to
"build an independent national economy".
Six years after the government launched its economic reform campaign, there is
little to suggest the drive has influenced the country's sick economy, which is
now seriously hampered by inflation. Yet the Kim Jong-il regime has never
wavered in its
intention to modernize its light industry by soliciting foreign investment,
technology and equipment.
Its perseverance is now beginning to bear fruit, although the ultimate goal of
exporting the merchandise seems a distant dream. North Korea has designated
2008 as the year of the "people's-living-first" policy, by which the government
aims to improve living standards by providing higher quality and greater
quantities of consumer goods, the Pyongyang Times reported in January, citing
Han Chong-su, department director of the Ministry of Light Industry.
In the ground-floor shop of Pyongyang's most upscale hotel, the Koryo, locally
made cookies and candies have replaced Chinese and Japanese snacks. Packs of
North Korean-made pork-flavored instant noodles contained in disposable bowls
crowd the shelves along with boxes of chocolates. The country's versions of
soda water in grape, lemon and apple flavors, packaged in plastic bottles are
in the store's refrigerator, along with locally developed "Cocoa" cola. Shampoo
and tampons made in North Korea are available in other shops in the capital.
In a nation facing massive economic barriers, producing any daily commodity can
be a difficult mission. The Taedonggang instant noodles in the hotel shop were
produced by Pothonggang Yeung Hoi Joint Venture Co, a partnership between North
Korea-based Pothonggang Co and Hong Kong-based Lida Trade Co, launched in
October 2000, according to the state-run KCMP newswire. The product found
little acceptance in the market until late last year. Producing soda hasn't
been easy, as manufacturers, already facing power shortages, were short of the
machinery required to dissolve enough carbon dioxide in liquid.
"Building an independent national economy" has been a long-term goal of the
world's most ideologically rigid communist state. Developing its own
manufacturing capability and boosting exports to develop its economy have been
the country's guiding goals since economic reforms in 2002. Soliciting foreign
capital and technology remains the core approach to achieving the missions, and
advertisements for investment projects have been posted on several Chinese Web
sites based in the border city Dandong.
The projects range from mining, furniture manufacturing, food processing and
yacht manufacturing to gas station construction. Vegetable- and fruit-farming
partnerships are also sought. Required investment varies from 100,000 yuan
(US$14,580) for any small-scale manufacturing facility to 45 million euros
(US$71 million) for a downtown Pyongyang five-star hotel.
The country's traders and economic officials are described as "naive" and
"unrealistic" when soliciting investment and planning sales of products,
reflecting their background of ideological isolation and an upbringing that
focussed on juche, North Korea's version of Marxism-Leninism created by
its leader Kim Il-sung.
Business dealings with officials who have such rigidly communist mindsets is
particularly difficult, according to investors based in Dandong, a city in
China's Liaoning province, bordering North Korea, who suggest that the slow
bureaucratic process needed to deal with any request is particularly painful.
"The North Koreans wanted us to invest in a soybean oil factory. But they have
neither raw materials nor machinery, which would make it far more expensive to
make the product there than in China," said a Dandong-based businessman. He has
negotiated a couple of investment projects in the past year with North Korea
but has yet to close a deal. Others complain that even those who invest are not
granted permanent residency visas.
The North Korean traders' unfamiliarity with standard practices can still
surprise their foreign counterparts. A Donggang, northern China-based
motorcycle trader, who gave his surname as Liang, said that after negotiating a
deal with his North Korean counterpart he was asked to sign a contract that was
a blank sheet of paper. Another foreign investor said clinching deals is
further complicated by the inability of North Korean factories and enterprises
to provide professional accounting statements, which means potential investors
lack objective references to weigh opportunities.
The absence of the concept of "targeting customers", is another issue,
according to a Pyongyang-based Western diplomat. Even senior executives at a
showcase cosmetic facial mask factory that North Korean authorities proudly
demonstrate to diplomats have no idea - or inflated ideas - of the likely
market for their products, he suggested. One famous case involves an ostrich
farm, started in the late 1990s and still in business, from which North Koreans
hoped to sell shoes and purses made of ostrich leather to Europe, ostrich meat
to China and neighboring countries, and painted ostrich eggs to the global
market.
The North Koreans, according to a Dandong-based investment consultant, are
aware of the problems and earlier this year requested traders and officials to
take a six-month economic course. They have also started to conduct surveys on
the interest of potential markets and likely market prices.
Commercial liberalization remains hindered by the government's inconsistency in
pushing its reforms, fostered by nagging concerns that a rapid opening could
prompt challenges to the Kim Jong-il regime. Since last November, the
government has again tightened up on private commercial activities, according
to a North Korea-born Chinese businessman based in Dandong, who spoke on
condition of anonymity.
Inflation now also poses a severe challenge to the government, exacerbated by
inadequate supplies food. By early May, one kilogram of rice on the black
market cost 1,600 won (US$11.23), compared with 400 won in 2004. Similarly pork
prices have jumped to 5,000 won per kilogram from 1,300 won, according to a
report of Chinese academics.
North Korea's reluctance to allow for a larger private sector may be limiting
food supplies. In Tongil market, Pyongyang's first uncontrolled produce outlet,
an abundant selection of vegetables, fruit, meat and seafood from North Korea
and China, available at varied prices, belies the existence of a famine that is
plaguing most of the country. On the other hand, rice and flour, which the
government once allowed to be sold privately but now fully controls, are
nowhere to be seen.
Transforming a Stalinist-style economy into a more capitalist one can't be
easy. But, remaining the Kim family in power is always the priority. Kim
Kwang-jin, senior research fellow at South Korea's Institute for National
Security Strategy, suggested that the turning point would be 2012, when the
regime celebrates the dear leader Kim Il-sung's 100-year-old birthday
anniversary.
"North Korea will put great emphasis on that period for power succession for
making a good environment and output for a successor. They will try hard to
improve the economic and diplomatic situation, which means they will try
opening to outside more and attract more aid," he said. "But, I do not expect
[economic] reform like others [such as China or Vietnam]."
Ting-I Tsai is a freelance journalist based in Taipei.
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