Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
DPRK CURRENT SITUATION AND FUTURE INTENTIONS BRIEFING & ANALYSIS.
Much of the research and contributions to this report have been provided by human sources within, connected to, or involved in the DPRK over many years. The subject matter is largely attained through discussions, dialogue and exchanges with the individuals over a number of years in some cases and their desire to remain unidentified and maintain their confidentiality will be respected.
issrisk.com 1 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
*********************************
Disclaimer
Reliance - This document (this Report) prepared by Intelligent Security Solutions Limited (ISS Ltd) is strictly private and confidential. ISS Ltd retains the exclusive ownership of the Report and of its content.
This Report is addressed to the Addressee only and, therefore, is not to be relied upon by any other person and is not to be used for any other purpose without the express prior written consent of ISS Ltd. The Report shall not be reproduced or stored in an automatic storage and retrieval system, in part or in whole without the express written consent of ISS Ltd.
ISS Ltd should be indemnified against any losses or damages suffered or incurred as a result of a breach of confidentiality herewith.
Scope - This Report focuses on issues which arise from the documents and information provided to us in relation to investigation on the current situation and prospective future intentions of the Democratic People's Republic of Korea. ISS Ltd reserves the right to change, revise or amend the content of the Report at any time.
Limitation - The contents of this Report have been limited to and derives entirely from our interpretation of the current political, military and economic situation of the Democratic People Republic of Korea and we do not intend to make any actual, past, future, direct or implied representation or warranty in relation to the Report herewith.
Commercial acceptability - We are not in a position to assess the significance or acceptability to the Addressee of any of the information supplied from a commercial perspective. This Report should not be viewed as any form of recommendation as to whether the Addressee should proceed with its commercial plans in relation with the Democratic People's Republic of Korea.
COPYRIGHT
Copyright © Intelligent Security Solutions Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, photocopied, stored in a retrieval system, or transmitted without the express prior consent of Intelligent Security Solutions Limited.
issrisk.com 2 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
*********************************
DPRK CURRENT SITUATION AND FUTURE INTENTIONS BRIEFING & ANALYSIS.
TABLE OF CONTENTS:
1.1 EXECUTIVE SUMMARY
1.2 INTRODUCTION
1.3 HISTORICAL OVERVIEW
1.3.1 Ideology / Politics explained
1.3.2 Political structures and influence
1.3.3 Social Structure and Control
1.3.4 Economic Snap shot, infrastructure, resources and
minerals
1.4 THE CURRENT NUCLEAR SITUATION – CONTEXTUALISATION – WHAT IS IT ALL ABOUT?
1.4.1 Contextualization
1.4.2 What is it all about?
1.4.3 The Role and Effect of Sanctions
1.5 POLITICAL INSECURITY and ISOLATIONISM issrisk.com 3 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.6 POLITICAL and ECONOMIC REFORMS
1.7 THE NUCLEAR PROGRAM, SATELLITE LAUNCH AND POSTOURING
Chronology of events from 1994 – June 2013
1.8 THE REAL RATIONALE FOR THE TIMING OF THE LATEST NUCLEAR TEST AND POSSIBLE INTENTIONS
1.8.1 Option A - From test capability to deliverable
missile?
1.8.2 Option B - Sovereign Security
1.8.3 Option C - The historic claim - Life support for the
Regime?
1.8.4 Option D - Paving the road to reform?
1.9 REGIONAL RAMIFICATIONS AND EXPLODING THE MISCONCEPTIONS AND THE MYTHS.
2.0 WHERE ARE WE NOW?
2.1 CONCLUSION: WHERE IS THE DPRK HEADED IN 3 – 5 YEARS?
issrisk.com 4 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.1 EXECUTIVE SUMMARY
North Korea, or the official name of the country - The Democratic People’s Republic of
Korea (DPRK), has been and remains an enigma and an unknown for many people across the world. When the DPRK is in the news it is so because most people assume normally it is for the wrong reasons, it evokes sentiments related to bellicose rhetoric and nuclear weapons and missile testing and threats of war and confrontation.
This is the discourse, the same tired discourse, which is repeated throughout many media outlets across the world and is used by many observers, analysts and opinion and policy makers to guide their perception, analysis and interpretation of the DPRK.
Why is so little known to the outside world about a country that they ‘hear and read’ so much about in the media? Why is North Korea so vilified in certain quarters and across the media generally? What, if any, positive stories do people actually read of the political reforms and structural changes and economic reforms being tried and tested and taking place in the country? What about the attempts to negotiate a peace treaty or agreement and finally, after 60 years, put the Korean War to rest? Or, put another way, when was the last time you read something with even a remotely positive slant regarding North Korea?
How has North Korea ended up with the pariah status it is universally awarded?
Why have they pushed so hard and relentlessly to develop a nuclear capability - what do they fear so much that requires such a deterrent? What role does China play in issrisk.com 5 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis respect of North Korea? What is actually happening inside this country that we hear so much about, yet understand so little?
What natural resources does North Korea have? Where are they? What about infrastructure – roads, rail, ports and shipping, power, airports? What legal structures exist, laws, government involvement in business? Unanswered questions and lots of them - that is what North Korea is about for most people when the country is mentioned in any respect.
This report is an attempt to explain the reasoning for posturing and the logic behind certain actions by the government of the country generally, but over the last few years particularly. It will help to explain the internal dynamics of the relationships between key persons and agencies and ministries that are shaping the future direction of the country, it will address these fundamental questions and provoke more. However, to do so one must understand what has happened and is happening and why it is happening now.
In reality the government in the DPRK is undergoing a transition and has been quietly for several years. The opacity of regime dynamics is one of the core challenges to understanding and anticipating the evolutionary trajectory of the regime. The demilitarization of the government, the strengthening of civilian institutions, the compliance of the party and the military in facilitating these changes, none of these should be underestimated.
Previous attempts at reform have floundered for differing reasons; the preparations and rationale this time around are vastly different. This transition is about the future of the country, where it is now and where it is going. The changes taking place are, in fact, methodical, gradual, controlled and tightly managed yet transformational for issrisk.com 6 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis the future direction and growth of the country. The ground work for these changes and their stewardship rest in the hands of a vanguard of people, largely selected by
Kim Jong Il prior to his death, or selected by several of these key people that he had anointed.
The coterie of senior officials that surround Kim Jong Un are largely all loyalists of his father's and will continue to pursue policies of gradually opening up the country's economy. To understand this correctly the key individuals who are the drivers of policy development in the power structure must be identified. To help contextualize the political structures and influence at the moment it is important to understand that a lot of the “influence’ wielded at the moment in respect of economic and political changes in the country is concentrated in the hands of these particular men.
Since assuming power in December 2011, Kim Jong Un has maintained continuity of his father Kim Jong Il's policies, and these key influencers and decision-makers around him are individuals who owe their loyalty to Kim Jong Il. The timing of the changes indicates that the decision to reduce the military's role in the economy probably dates back to the last years of Kim Jong Il's leadership. These moves are likely to have been initiated due to a growing realisation that the military's current pre-eminent position within the economy is largely unsustainable and has ultimately contributed to inhibiting meaningful economic growth.
The DPRK’s evolutionary trajectory will be defined by their emergent Asian neighbour
- China. While western influence in Asia wanes China will continue to practice statecraft honed by 20 centuries of experience. China’s economy will continue to grow, perhaps at a more moderate rate, but grow nonetheless. The DPRK will simply not be permitted to implode. The newest fashionable meme - “failed state” has no application to DPRK and will not stick.
issrisk.com 7 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Five years ago when one spoke of Burma, or Myanmar, the perception was starkly different then to what it is today. What changed for Myanmar? What is changing for North Korea?
The DPRK will continue a staged evolution into an authoritarian mixed command / market economy. Therefore, in respect of North Korea over the next 3-5 years, contrary to the views that you sometimes simply don’t know what will happen, there exists a raft of significant opportunities and options. The lifting of sanctions, achievable if a peace accord between the parties to the armistice can be reached, or is allowed to be reached, will change the North’s mindset and opportunities.
issrisk.com 8 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.2 Introduction
Once again, in the first few months of 2013, the world’s gaze was again firmly on the
Korean peninsula for several months as tensions with the South and the US and
North Korea was ratcheted up again.
Arguably this introduction could be applied fairly consistently to reports or analysis or news headlines appearing between 2006 to 2013 regarding North Korea and their seemingly favorite national past time of nuclear tests and missile tests. But what is it about the DPRK that makes them so different to other countries in terms of being labeled with that un-envious international pariah status? Why are they so set on an apparently continuous cycle of confrontation?
The usual regurgitated analysis and explanations were offered by the same analysts offering the same somewhat dreary and repetitive explanations for what was happening, but with little substance to back them up. The analysis is almost always the same. The only thing this paucity of insight does help to explain about North Korea is quite simply a fundamental lack of understanding of their logic and reasoning by the west and coupled with a fundamental unwillingness to want to understand ‘what do they really want’. This is something the North Korean’s have become wise to; they really do know that the rest of the world does not know what they know. But what is the difference this time around and why does it deserve a more detailed explanation?
Quite frankly it is not that much different this time around, well, nearly not. The regime issrisk.com 9 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis was perhaps a tad more zealous at times in some of the rhetoric it employed over the past few months, but dummy nuclear bombing runs by US Stealth bombers on their border perhaps contributed to this ‘zeal’.
Although it may seem as though nothing much has changed, things are changing, the
DPRK is changing, but they require certain objectives to be met before that change can really take hold. The root causes of North Korea’s concerns have still not been addressed and the continuous cycle of sanctions and condemnations will not address them, at least not until the western powers stop, take a step back and actually ask, what does the DPRK want? The changes will be addressed and contextualized within this report in a balanced and objective manner.
The round of sanctions imposed on North Korea since late last year as ‘punishment’ by the great powers of the world for their intransigence and desire to simply have what they have (Nuclear weapons) has actually been having a more punishing effect than previous sanctions. However, the reason is that these sanctions are coming at a particularly critical and interesting juncture for North Korea.
The DPRK has been striving for years to secure their sovereign security in face of strong resistance from particularly the US. The entire Nuclear Weapons and missile program has been designed to achieve this end. Although it is indeed the North
Koreans who have vigorously pursued the development of their nuclear and missile program the United States has played a significant role in the development of the
DPRK’s nuclear capabilities. How? Firstly, the US has been consistent with one policy pertaining to North Korea over the past 60 years – Regime change.
As a consequence of this policy the outright refusal by the United States to engage in direct dialogue with the North Korean government aimed at finding a resolution has helped to create the current situation. Secondly the threats issued by the US in the issrisk.com 10 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis formative years of North Korea’s national identity that they would “level and destroy the country”. A bold statement? Perhaps, but perhaps not. A latter section of this report will clarify and support this assertion.
The DPRK government has again called for dialogue and engagement. So far it is receiving the same response as previously, negatively and with significant and, certainly historically at times, warranted scepticism. The resumption of a diplomatic process should be welcomed but will likely face similar problems as previous rounds of talks in which progress was undermined by a lack of direct, unambiguous dialogue between
North Korea and the U.S., which is what the DPRK really wants.
Whilst the six-party talks were a useful forum to some extent, resolution of the issue of potential nuclear proliferation will ultimately require commitment to bilateral or even a parallel set of tri-lateral negotiations that address North Korea’s sovereign security concerns and U.S. demands for absolute disarmament. However, an intrusive disarmament verification process envisaged by the U.S. is unlikely to be achieved and is very unlikely to help matters. The strength and scope of China’s response could prove to be a major incentive in persuading North Korea to offer more concessions; however, this is only likely if the U.S. is prepared to sit at the table with a much more conciliatory and realistic agenda and tangible offerings linked to economic development.
Historically the threat of North Korea’s nuclear capabilities was greater than the reality of actual possession given the conditions in the country. That may be changing with the passage of time though. It has now been seven years almost since their first nuclear test; they have come on some way in the intervening period in terms of technological development. Does that mean they have nuclear capabilities now?
Likely. Does it mean they have miniaturized and weaponized nuclear capabilities now?
Unlikely, but getting closer to that objective no doubt. Consequently, the tone of the proposed talks and direction should be based more on the alleviation of North Korea’s issrisk.com 11 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis sovereign and security concerns first, that after all is what their desire for nuclear weapons capability is essentially all about! Economic, political and social reform could be a very real possibility if the former can be assured, this will be covered in greater detail within this report.
Moreover, this report will explore the historical basis of North Korea’s situation; the deterioration of the country’s economy in the 1990s through to the last three years, the social decline and perceived political insecurity that has brought around the current situation. This analysis will establish a historical contextualization of the country, the regime and its people to explain the rationale for the timing of the latest nuclear test and a tangible, balanced analysis of the DPRK’s actual aspirations, which are now being consolidated by the leadership in Pyongyang, and In so doing it will demonstrate that the regime is actually not removed from reality, but is actually playing a very shrewd game of brinkmanship with a much longer term view and specific plans in progress.
issrisk.com 12 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.3 HISTORICAL OVERVIEW
1.3.1 Ideology / Politics explained
The North Korean government has held onto power for decades through a unique mix of iron willed political oversight and control of society via a revisionist ideological approach to its’ own existence. The governing ideology of North Korea is that of
‘Juche’ (self reliance), a philosophical combination, in its earlier form, of Communist
Marxism/Leninism, Stalinism, Maoism and drawing on the homogenous values and nature of Confucianism, but not directly attributing or including teachings of
Confucianism within the doctrine.
The central pillar of ‘Juche’ is its very definition, self reliance. The Military First doctrine of Songun is quite literally that the military supersedes all of collective society, but, which however, is subordinate to the ruler. This militaristic approach has governed society and politics on the peninsula for decades, thus reflecting why the issues of sovereignty and national identity, and security by association, are paramount in the North’s dealings with her allies, neighbours and enemies.
The nurturing of Confucian values and norms as an integral element of the ideology has helped to reinforce the sense of loyalty from the people to the Kim family and the
Party. Moreover, the traditionalist ‘nationalism’ that pervades even South Korea has been employed as a means of maintaining an almost xenophobic loyalty to the sovereign state.
issrisk.com 13 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Consequently, one can look at the creation of the political ideology of the DPRK as a mixture of both ‘nationalist socialism’ inspired by ‘communist theory and practices’ but very traditional on a regional basis and ultimately, conservatively Asian in application.
This is supported by the fact that the North Koreans effectively never truly subscribed to the form of communism implemented in either the former U.S.S.R. (from which they effectively broke off from ideologically in 1955) or in China (from whom they declared political independence in 1965). Although they drew limited military and somewhat greater economic support from both, it is reasonable to claim that the Chinese traditionalism was much closer to their own interpretation of socialist values.
The political doctrine of ‘Juche’ has withstood a carefully managed process of revision.
Periodically throughout the past 50 years the ideology has been subjected to subtle changes to accommodate changing world events. The break in relations between the principle communist countries, the collapse of the Soviet bloc, the Chinese near abandonment of ‘true’ communism in favour of a ‘socialist market orientated economy’ are but several clearly definable events that have contributed to a contraction of socialist ideology across the globe. However, because of a degree of pragmatism and much larger degree of manipulation, North Korean style socialism survives into the 21st century.
issrisk.com 14 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.3.2 Political structures and influences
The governing ideology and inherently Asian characteristics are no mere accident when it comes to the structure of the North Korean society and the subsequent maintenance of the hegemonic control exercised by the regime. The ‘political pecking order’ in ‘modern’, 21st century North Korea, is designed to facilitate control by the state and exploits the hangover from the ‘traditional Korean caste system’ that existed at the turn of the 19th century. There are 51 classifications in the North
Korean political ranking system that determine a persons position and standing within the social hierarchy. Therefore, societal control is evidently multi faceted.
Civilian movement between cities and towns is regulated and controlled via a travel certificate system. Work is very much associated to the commune, with political doctrine stringently adhered to and party cadres enforcing compliance in both the mornings and evenings. In what can only be described as an ‘Orwellian’ existence,
(yet that same description could be widely applied to supposedly free countries whose governments secret observations of everything from e-mails to text messages smacks distinctly of Orwellianism) political control extends beyond the work place into the supposed social environment, with community sessions extolling the political doctrine, virtues and success’s of the regime.
Sessions of mutual and self criticism are not uncommon either. Rationing of food is the norm with the state controlling distribution, types of food and essentials for dispersal. Education does not escape the regimented approach to life. On the contrary, it is used largely to promote politics and social conformity via the curriculum. issrisk.com 15 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
The system permeates every facet and level of education from primary school to university. Thus the societal control is instilled from an early age.
Although people have experienced extreme hardship over the years their loyalty to the leadership is nurtured through this blend of communism and nationalist socialism and is directly associated to the issue of sovereignty and state security.
This feeling of nationalism is one reason why the North Korean people have been exploited and yet at the same time staunchly supported their government for so long.
Another factor was that the military, through the ‘Military First’ policy, literally permeated every level of society exercising a stringent management and control of the general populace. This is and has been subtly changing since 2010 though and will be addressed later in this report.
The opacity of regime dynamics is one of the core challenges to understanding and anticipating the evolutionary trajectory of the regime. To understand this correctly the key individuals who are the drivers of policy development in the power structure must be identified. To help contextualize the political structures and influence at the moment it is important to understand that a lot of the “influence’ wielded at the moment in respect of economic and political changes in the country is concentrated in the hands of those identified in figure 1 below (unofficial government structure).
These are people who have either been hand picked and appointed by Kim Jong Il, prior to his death, or have subsequently been appointed by those Kim had previously anointed.
The power they wield is about the power of change. Figure 2 below is the traditional or accepted governmental organisational chart. This report is not about the entire issrisk.com 16 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis governmental structure of the DPRK, there are plenty of North Korea watchers primarily concerned with that.
The influencers:
Essentially the primary group of power brokers around Kim Jong Un who are driving the measured restructuring include the following people:
! Jiang Soong Taek (1st in importance) ! Kim Yong Nam (2nd in importance) ! Pak Pong Ju PM (3rd in importance) ! Gen O Kuk Ryol (4th in importance), ! Vice Marshall Choe Ryong Hae ! Paek Hyon Bon ! Ri Chol ! Ro Du Chol, ! Ri Yong Nam, ! Rim Song Sik
There are other central figures in the Worker’s Party of Korea (WPK) Central
Committee, the National Defense Commission, the Supreme People’s Assembly,
(SPA), the SPA Presidium, the Party Central Committee, the Military and the Cabinet who are of importance.
The above individuals of interest are important as they are the ones involved in implementing and overseeing the changes and transitional aspirations towards strengthening the civil institutions. Many were directly appointed by Kim Jong Il to help facilitate Kim Jong Un’s ascent and to ensure that these changes were issrisk.com 17 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis implemented. Others have been appointed by Kim’s anointed choices.
Profiles
1. Jiang Soong Taek
Uncle to President Kim Jong Un (Married to Kim Kyong Hae, sister of Kim Jong Il).
He is currently Vice Chairman of the National Defense Commission and is a high ranking member of the Party and member of the Politburo. He has been used by
Kim Jong Un and Kim Yong Nam to lead a couple of important delegations to Beijing.
He is also Patron/Chairman of one of the major state owned conglomerates: the
Korea Sungri Corporation, which is a wide ranging trading house with gold and industrial minerals tenements. He was at one time associated with the Taepung
Group, originally a Hong Kong based company which collapsed and is under investigation by the financial regulatory authorities for improper trading. Taepung is now registered in Pyongyang but is in the process of being wound up.
He may possibly be limited in terms of travel, but is reasonably safe in China. Is still the go-to man for the President because of his family ties. Kim Kyong Hae is also extremely influential and may even be the real power behind Jiang’s rise to prominence. She is not to be under-estimated.
2. Kim Yong Nam
President of the Supreme People’s Assembly and the international public face of the
DPRK. Had served Kim Jong Il well since the late nineties and is doing the same for his successor. He is for all intents and purposes the governor general (head of state) of the DPRK. issrisk.com 18 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
It is he who interfaces directly with foreign diplomats. Of late, under Kim Jong Un, he has undertaken a higher profile by travelling the region promoting trade and investment for the DPRK.
He is in his mid to late eighties but is very much respected and is in demand by the
President because of his knowledge and undoubted loyalty to the party and the Kim family. Officially, he is the second most senior person in the DPRK government.
3. Pak Pong Ju
A tremendous survivor and was Prime Minister from early 2000s to 2007 and appointed again in April 2013. He is well known as a reformer with strong links to the architects of the Chinese economic market model. He Is close to the Kim family, particularly with Jiang Soong Taek.
Pak was favoured by Kim Jong Il as Prime Minister until outside pressure and lack of foreign investment forced the DPRK into a more introspective ‘military first’ mood.
He was never far away from the main stream and surfaced again in 2009/10 as a director of the central committee of the Worker’s Party, during which term Jiang
Soong Taek joined.
His second appointment as Prime Minister is a clear indication that the DPRK is moving to toward a market economy. He will be making more changes as time flows on.
4. Gen O Kuk Ryol
A very close and trusted confidant of the Kim family - his father fought alongside Kim Il
Sung in the war against the Japanese. issrisk.com 19 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
The O family is regarded by North Koreans as being the protectors of the Kim family and the relationship has endured through thick and thin.
General O is the First Vice Chairman of the National Defence Commission and is junior only to Kim Jong Un, who is the Chairman. He was at one time a member of the Politburo, but his position there is uncertain today.
In the last 12 – 24 months he has been promoting a move away from the military involvement in the national economy to the civilian government under the Prime
Minister, which suggests that the shift to a market economy has been on the cards since the last years of Kim Jong Il’s Presidency.
! General O is in his eighties and is slowly withdrawing from direct involvement in
anything other than the military.
! While Kim Yong Nam is the 2nd most senior man in the DPRK, General O is the
second most powerful.
! A successor is being groomed and he is purported to be Choe Ryong Hae.
5. Vice Marshall Cho Ryong Hae
Was appointed as Vice Chairman (alongside Jiang Soon Taek) of the National
Defence Commission when Kim Jong Un took over the Chairmanship after the death of his father. He is known to be a politician and is also appointed to the Politburo.
He recently led a special delegation to meet China’s President Xi Jingping and inform him of the changes being made in the DPRK on both political and military fronts.
Vice Marshal Cho is young (in his mid-sixties) and his star is on the rise. He is comfortable with a high profile image and his importance is growing because of his issrisk.com 20 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis ability to deal with the two most closely linked issues that affect the DPRK – politics and the military. He is able to easily straddle both sides of the DPRK government and that makes him an effective member of the Politburo.
6. Paek Hyon Bon
Mr Paek’s current formal position is not known, but he has been brought back to prominence by the Prime Minister Pak Bong Ju in his second term. Paek’s strength is his extensive knowledge and experience of managing relations with international investors. He was previously (under Pak’s first administration) Chairman of the
Korea Committee for the Promotion of External Economic Promotion.
Like Pak he is an admirer of the Chinese model for a market economy and his posting to the DPRK embassy in Beijing underlines his growing importance to DPRK reforms and perhaps even a closer link with the Chinese economists. He is a trusted confidant of Prime Minster Pak.
In many ways, in may be said that Paek set the stage for Ri Chol’s Joint Venture and
Investment Commission (JVIC).
7. Ri Chol
Ri Chol is the chairman of the Joint Venture and Investment Commission (JVIC) and a career diplomat. He was DPRK Ambassador to Switzerland for nearly 30 years and a close friend of Kim Jong Il. Ri has a good track record for attracting foreign investment and is credited with bringing in the Egyptian company, Orascom, which established and now operates the fast growing mobile phone network in North Korea.
Of late, he has been given a roving role exploiting his skill in the international arena to mentor a number of investment promoting agencies such as the Investment and issrisk.com 21 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Development Group, which has an impressive representative office in Beijing. The
JVIC, took over from the Taepung Group when the latter floundered with failure and poor publicity.
8. Ro Du Chol
Ro Du Chol is Chairman of the State Economic Planning Commission and long-time member of the Cabinet as Vice Premier. He served through Pak Pong Ju’s first administration and through two others since. He continues in his role as Chairman of the planning body, overseeing planned economic reforms and is bolstered by the return of Rim Song Sik.
9. Ri Yong Nam,
Ri Yong Nam is the Minister of Foreign Trade and is highly regarded by his contemporaries in the DPRK Cabinet. Young, in his mid-fifties, he speaks English fluently and is well versed in ‘western’ practices. Like Paek Hyon Bong, Ri is a pragmatic person who understands the significance of properly formulated agreements and security of tenure for foreign investment.
Ri works closely with Kim Yong Nam and has accompanied him on all his trips overseas. He was also a key member of the Jiang Song Taek delegation to Beijing discussing economic cooperation. With a key component in the DPRK government’s strategy being to move to a market economy, which can only be achieved through direct foreign investment Ri Yong Nam will have a critical role to play.
10. Rim Song Sik
Another survivor, Rim Song Sik was Vice Premier and Senior member of the State
Economic Planning Commission under Pak Pong Ju’s 1st term. He holds an issrisk.com 22 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis encyclopedic knowledge of the country’s economy and its natural resources. Has travelled overseas to gain experience on how other countries develop and maintain their economies. He was suddenly removed from office in late 2007 and was not heard of again until quite literally a few weeks ago.
Premier Pak has re-instated in him as Vice Premier and senior member of the State
Economic Planning Commission.
He could be seen as the final link in the creation of a special group to develop a formal framework under which to attract and maintain sustainable foreign investment. It would not take much to determine that other members would include Ri Yong Nam,
Paek Hyon Bong, Ro Du Chol as well as the Prime Minister. Others mentioned (Up and coming) in this list are engaged as advisors.
Historically foreign investors have had little or no confidence in their ability to recoup investments from the country under the prevailing economic conditions.
Foreign trade has risen of late as North Korea eases its self-imposed isolation in hopes of spurring a revival. However, this effort has by and large been limited to trade between China and the North and South Korea and the North. This too is also changing.
The establishment of the JVIC (Refer to Governmental Structure figure 1 diagram) is there to facilitate and encourage foreign direct investment into the country. The
DPRK’s scatter gun approach to attracting foreign investment through a myriad of agencies has led to much confusion and very little success.
On his return, it appears that Prime Minister Pak is creating a special agency through which he can exercise centralised and strategic control over the promotion for foreign issrisk.com 23 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis investment. It will take the form of a very high level Cabinet committee coupled with an agency that can interface with the public and foreign investors. Policy decisions will be made at this level and their implementation coordinated.
This re-organisation has been alluded to recently by several South
Korean publications and analysts, but they have not identified the manner in which it will mesh together with the objective to gradually transition the responsibility for oversight of the economy from the military to the civil administration, with close monitoring by the Party. It must be made absolutely clear the Party is not running or managing the economic reforms and developments at either the central level or further down the chain in any shape or form.
For example, the Party has created a new centralized department with branches throughout the nation to formulate and oversee policies ranging from the appointment of top officials to the approval of companies and the implementation of foreign exchange controls. This latter measure is particularly targeting the military and other executive arms of government. They will all have to seek permission and clearance from the new department and committee to be allowed to establish any body, company or agency that will be involved in earning foreign currency.
What this is referring to is the creation of the high level cabinet structures alluded to above. This is designed to consolidate the power of the civilian government over the military and ultimately replace their role in economic management but leaving the
Party with oversight on economic matters. It does not say that the Party has management control of this high level cabinet committee. Although the Party has established a Department of the Economy with committees in each and every city and province, the claims that the newly formed Department of the Economy will wield as much power as the Department of Organization Management, which oversees the entire Workers’ Party, are not accurate. issrisk.com 24 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
The Department of Economy will also have the power to appoint and punish officials in charge of economic matters under the direction of the special cabinet committee.
It will be a very strong department in the Party.
In short, the Party having an oversight role will ensure that they can ‘control’ the pace of reforms. It is also indicative of a ‘reigning in’ of elements within the military that operate with something close to impunity. For example, take the western region of the DPRK where military and naval commanders have had significant control and influence and have literally run their own little trading empires over the years.
A good example is diesel supplied from China. The naval and military commanders in charge of logistics, in the western region, have been forcing Chinese fishing vessels to buy fuel from them when fishing within DPRK maritime boundaries, the same fuel supplied free by the Chinese (as such) and sold back to the Chinese fishermen at grossly inflated prices. It is this sort of practice is that is being targeted. Essentially, think where China was 25 years ago regarding the influence of the PLA on economic matters and then you’re close to what the North Korean government and Party are attempting to do.
issrisk.com 25 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Figure 1: Unofficial influence map of DPRK Government
issrisk.com 26 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
DPRKDPRK GovernmentGovernment StructureStructure
Worker’s0Party0of0Korea Kim0Family National0Defence0 Commission Kim00Jong Un00K President Jiang0Soong0Taek (Regent) Central0Committee Military Kim0Jong Un Jiang0Soong0Taek National0Defence0Commission Choi Ryong Hae Supreme0People’s0Assembly Kim0Jong Un0K Chairman0 Choi Ryong Hae – Vice0Marshall Kim0Yong0Nam0– President General0O0Kuk Ryol – First0Vice0Chairman Jiang0Soong0Taek – Vice0Chairman Budget0Committee0of0the0SPA
Cabinet Cabinet Pak0Bong0Ju – Prime0Minister JVIC Ro0Du0Chol – Vice0Premier Ri Yong0Nam0– Minister0of0Foreign0 Trade Ministries Kim0Myong Gil0– DG,0Ministry0of &0SOCs Foreign0Affairs Joint0Venture0&0Investment0 Rim0Song0Sik – Planning0Commission Commission Ri Chol K Chairman Kim0Chol Jin0– Vice0Chairman0 Choe Hyon Sok – Vice0President0K IDG
issrisk.com 27 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
issrisk.com 28 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Figure 2: Official influence map of DPRK Government
issrisk.com 29 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.3.3 Social Structure and Control
The DPRK government has rigidly implemented a macro and micro managed command economy since the 1950s. Although initially the country had the potential to develop well, with economic growth superseding that of many of its neighbours, the inflexibility that has been applied to the management of the economy and the adoption of particular ‘characteristics’ from both the Stalinist Soviet model and the reformist market embracing Chinese approach, and adherence to them all created particular problems.
The collapse of the U.S.S.R. essentially left the DPRK in dire straits, coupled with a literally regressive economy facing the risk of famine and shortages of food. The massive projects directed at modernisation, industrial development, collectivised agriculture and consequently the appearance of rapid, but unsustainable growth, insulated the then regime’s leadership from the reality of the need for market reforms.
The command economy approach in respect of economic management eventually ensured a somewhat detached perspective governed the economy and ultimately led to a situation whereby the country could not produce sufficient food to feed itself and was dependant upon aid and support. The country has essentially been on life support for three decades.
This situation was exacerbated severely by the loss of fuel subsidies, lack of exploited natural resources (of which the North sits on an abundance) and combined with an over reliance on an energy hungry industrial sector. The government is now quite issrisk.com 30 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis aware of their circumstances and they realise that a complete economic collapse and another potentially devastating famine are significant risks that potentially threaten the stability of the country and the ruling elite.
The economy has been steadily faltering since the early 1970s, with a more rapid decline in the late 80s and early 90s culminating in a catastrophic famine by the mid
1990s. How much of the speed of decline can be attributed to the primacy of the
‘military first’ policy, or to the adherence to the command economy, or a combination of both, is not known due to the North’s reluctance to publish economic data.
However, it is reasonable to assume that both policies have contributed significantly to the dire economic situation in North Korea throughout the 1990s and the 2000s.
The global decline of communism and socialism in the 1980s and early 1990s collided with the internal turmoil and contributed further to North Korea’s economic stagnation and subsequent decline and political isolation. North Korea’s situation has become dire in the first few years of the 21st century. As previously observed, the DPRK’s economy collapsed catastrophically in the 1990s from the convergence of the many factors identified: the colossal failure of the command style economy, significant agricultural decline and loss of Soviet aid, famines and natural disasters to name but a few. The famine in the 1990s in the country is believed to have claimed anywhere between 1-3 million lives, although the aid agencies have never quite been able to agree on the quantum and the North Korean government has never released figures.
Previous attempts at economic reform have been mismanaged, inappropriate or simply ineffective. The creation of several Economic Development Zones in the
North on the border with China and in the South on the border with South Korea, have failed to deliver up to expectation. The EDZ in the North was initially boycotted by the Chinese over disagreement as to whether the North Koreans had adequately issrisk.com 31 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis consulted or included the Chinese in the strategic development of the zone. In the
South the zone has faltered badly due to lack of infrastructural support and resources.
The lack of Direct Foreign Investment has also been a significant contributing factor in the failure of attempts at economic reform.
Chinese towns have grown up where bridges cross the Yalu and Tumen Rivers into the DPRK. Modern hotels in neon-lit Dandong and Yanji contrast sharply with the aging structures on the North's side. China also has invested in North Korean industrial projects. South Korean companies have established factories in the southern export zone of Kaesong and invested in the Diamond Mountain holiday resort. North Korea’s problems continued unabated in the early part of the 21st century and up to now.
However, things are changing. Currently China is the North's dominant trade partner and economic lifeline, providing up to 90 percent of its oil, delivered through a cross-border pipeline, and 80 percent of consumer goods by road and rail. A seemingly endless stream of trucks labour across the border from China into North
Korea, part of a subsidized food and fuel aid program from China that helps keep the economy afloat.
Although I stated previous attempts at economic reform have been mismanaged, inappropriate or simply ineffective, there have also been some that have been partially successful. The first being the establishment of the ‘Rajin-Sonbong Free
Trade Zone’ in 1994. However, when Kim Jong Il visited the zone and made the observation that “trade is not a free commodity” the word ‘free’ was deleted, and subsequently the name changed to ‘Rason City’. In 2009, Governor Lim (the former
Trade Minister) was placed at the helm, and Rason has been steadily evolving ever since. Its strategic location at the mouth of the Tumen River, where the three riparian countries of China, the DPRK and Russia all meet, has significant issrisk.com 32 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis opportunities as an energy and transportation corridor. China has no access to the sea, and so two of the three north-east provinces of China are landlocked. China has since taken one complete pier in Rajin port, and Russian Railways have upgraded the rail-tracks to Rason, which is effectively their only 100% ice-free port. Note:
Rason, is the city and Rajin the port.
The set-up of Rason-City was significant in that, following China’s opening up under
Deng Xiao Ping (from 1979), the DPRK was always going to be considering (what
Kathi Zellweger dubbed as) ‘socialist market economy reforms, with Korean characteristics’. The set up of the first ‘Economic and Trade Zone (ETZ)’ was indeed an experiment, and despite generally less-than glowing reports, it has continuously and steadily developed in stature and recognition. Laws and regulations for Foreign
Investment were based initially on Rason, and then Pyongyang and then spread to the whole country. The Korea Committee for the Promotion of External Economic
Cooperation (CPEEC) was formed as the body to coordinate foreign direct investment
(as the CCPIT Chinese equivalent had been since 1979). Note: Paek Hyon Bong was Chairman of the CPEEC
Another important initiative on ETZ, remains the ‘Kaesong Industrial Park (KIP)’ was the result of the initiative of the ‘north and south’ leaders meeting in the historic summit of 15th June 2000. It nestles on the north side of the DMZ (the paradoxically named De-Militarised Zone, which is actually the heaviest concentration of weaponry and troops anywhere on earth).
This initiative had clearly been a significant success, even withstanding the antagonistic years of the S. Korean President Li Myong Bak’s term in office.
Until recently that is, when the tensions of early 2013 took their toll. Once the issrisk.com 33 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis positioning and details of the re-negotiation of this zone are settled, serious benefits can accrue to both sides. However, it should be noted that the S Koreans totally regard this as an inter-Korean initiative (officially only Phase II, which has never been seriously discussed, is open to foreign companies).
The fourth and most recent ETZ initiatives, of 2011 and 2012, have been on the Yalu
River, over the border back into the DPRK. The efforts of the DPRK to develop these islands have not yet succeeded. Much of the reasons for the lack of relative success of the DPRK ETZs, compared to China’s successes, including Shenzhen’s spectacular growth with Hong Kong, and other successes in Indonesia, Malaysia, and
Singapore, are the;
! Absence of foreign-investor buy in or consultation with foreign partners
! Failure to guide on the understanding of how to win over foreign media
! Lack of any professional / coordinated marketing and promotion campaign
! Non-engagement of a consulting company to assist & guide on ETZ set-up.
! Absence of any clear channel for non-PRC/ROK investors/companies
The DPRK clearly does not want to be beholden to any one or two inter-Korean or foreign partners; it needs to open to the world, and to be seen to open to the world. It is strongly recommended that real and experienced business people with exposure to the country are engaged to advise and participate in this serious and much-needed exercise.
issrisk.com 34 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.3.4 Economic Snap shot, infrastructure resources and minerals
The most common perception economically of the DPRK is the continuous economic and social decline of country, which has been without doubt a reality and has prompted many analysts and North Korea watchers to take the line that ultimately, eventually, or hopefully, the regime and country will simply implode.
The economic reforms implemented in 2002 were literally shock therapy for the country’s economy and society and the resultant inflation was exceptional and contributed greatly to the collapse of the system. Indeed the country does face a dire set of circumstances, however, the much vaunted implosion has never quite happened and is unlikely to happen given the DPRK regime’s chameleon abilities to survive and avert collapse under the weight of international pressure and sanctions and domestic problems.
The stagnation and decline became a way of life for the citizens of the country who endured many years of command style economic mismanagement, a cycle of food shortages and several famines, political and social repression and extreme poverty.
The international sanctions imposed in the past and threats of conflict have in fact not deterred the regime in its quest to acquire nuclear capabilities, although the sanctions, as they do in most cases, have made an already difficult existence even direr for the issrisk.com 35 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis people. The strategy of destabilisation has failed time and time again and each time the potential implosion seems further away than ever.
To the outside world the Regime always seems to survive in the face of adversity.
The attempts by the U.S., U.N. and neighbouring countries to cajole cooperation have always fallen flat and created a more hostile environment. Whereas attempts to entice and encourage cooperation through financial assistance and aid support, by one side or the other, but never all-together (the US, ROK, Japan plus the other two members of the six party grouping), and the UN, have allegedly been seized upon and abused and used by the DPRK to sustain itself and remain afloat.
The much anticipated and hoped for potential implosion will in all probability remain an elusive dream whilst the country is crippled by sanctions or, threatened with possible military intervention and at the same time supplied with aid.
issrisk.com 36 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
" DPRK Infrastructure, resources and minerals.
The DPRK wants to grow its economy in a controlled fashion and they understand that infrastructure deficiencies will prolong the development period – road, rail, power and ports need upgrading. They also understand that North-East Asia being a significant economic region is also starved of and hungry for raw material input which the DPRK can provide issrisk.com 37 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
There are plans to involve neighbouring countries in developing infrastructure. Russia proposes a rail link routing through the DPRK to the ROK to connect to the
Trans-Siberian railway and onwards to Europe (see maps below for proposed route).
This would reduce transport time from South Korea by 30 days for exports to
Europe rather than containers by the sea route as present. A gas pipeline is also proposed along the same easement. The proposal however omits China’s involvement in the railway, playing a balancing act here in that respect.
These infrastructure plans would create a series of transhipment hubs in the DPRK for
China and Russia. Obviously the knock-on advantage for DPRK infrastructure upgrade is significant. The government would also generate revenue from tolls to fund DPRK development plans.
Such a move is attractive for the region; the nearest Chinese port is the congested port of Dalian in the Yellow Sea. The DPRK can offer all year round port facilities at
Rajin, on the China/Russia/DPRK border in the north-east, a lease is being negotiated with both Mongolia and China for access and use of the port.
The DPRK’s development agencies are in discussions with Chinese infrastructure funding sources to assist and help in realising these plans. The DPRK believes they can make positive contribution to the UNDP’s ‘Greater Tumen Initiative’ for regional economic growth and environmental management
Such moves are currently attracting attention. For example, recently (19th June 2013) a Mongolian energy investor-consortium announced a plan to export its oil through the
DPRK – and to re-boot a former Russian refinery as stage two of the plan. This has issrisk.com 38 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis significant positive ramifications for the geo-politics of all the countries above, and potential for a gas-pipeline and rail-package plan.
Rail –vs- Sea
Proposed Rail Lines
issrisk.com 39 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
CHINA
CHINA
Proposed route of railway
DPRK - A proposed Transport
Hub
Shipping and ports infrastructure current situation and prospects:
Size and capability of DPRK shipping and ports:
The DPRK faces constraints on many different levels, however, the lack of infrastructure and the necessary investment and support required is a significant hindrance that needs to be addressed and developed. For example, regarding shipping, the DPRK has approximately 40 vessels of varying sizes but certainly none more than 40,000dwt.
All vessels are very old and need major repairs or replacement. Although, the North
Korean crews have a reasonable reputation for their work ethic and capabilities in keeping the fleet at sea.
The 6 largest (by volume) cargo handling ports with an annual volume of 27m tonnes
(for all ports) are:
" Nampo: 9.5mtpa – draft 12metres. The only container port in the country, which
can accept Panamax (50,000dwt) vessels. It handles most of the general cargo issrisk.com 40 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
for Pyongyang. Not much bulk cargo goes through here other than for imports
of wheat for further processing and cement.
" Songnim: 1.908mtpa – draft 8.9m. Upstream from Nampo is primarily to serve
the bulk transport of iron ore and steel products for the nearby Hwangae Iron and
Steel Complex.
" Haeju: 1.65mtpa – draft 8m. Port serving the south-west part of the country which
was at one time the main outlet for cargo to China. Primary cargoes are
agricultural and fisheries produce and some small bulk shipments of iron ore from
the Pyoksong iron ore mine to China for further processing.
" Chongjin: 5mt – draft 8.9m. Port on the north-east coast of the country primarily
serving the shipment of iron ore (concentrate) and steel products. It has bulk
loading facilities as a separate zone next to the Kim Chaek Steel Mill. The port
silts up very quickly and can only serve 20,000dwt vessels
" Hungnam: 4.8mt – draft 8.9m. Located in the western part of the country serving
the industrial mineral (magnesite, graphite etc) mines in the region.
" Wonsan: 0.6mt – draft 6.7m. A general cargo port with no bulk handling facilities.
Mainly used as a docking point for ferries to Japan. Wonsan is a resort city and it
is concentrating on promoting tourism. It is one of those areas recently targeted
by Kim Jong Un for leisure development along with the alpine slope in the
north-east. This could change with the advent of a proposed graphite project
and potential ties with the ROK on the eastern side of the country.
Needs and plans to upgrade
issrisk.com 41 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
The story is the same for all ships and ports in the country at the moment. They are constantly trying to find vessels in the 30,000dwt to 60,000dwt range with self-loading capability.
Nampo, the best and largest of the ports in the DPRK, desperately needs loading equipment (container and other cargo) and trucks and fork lift trucks.
The current installation is over 30 years old. The same essentially applies at every one of the other ports; they desperately need investment to allow for upgrades.
Chongjin, has a bulk loading berth and conveyor loading equipment which includes hoppers for rail trucks to tip iron ore into but for the want of small replacement parts the system is more often than not, inoperable.
If greater volumes of iron ore concentrate is to be shipped, Chongjin will need warming sheds for winter use. The temperature drops to minus 30 degrees C in winter and the iron ore solidifies in the rail cars and which is then tipped out as a single block and damages the hoppers and conveyors.
There are obviously plans to upgrade, but the lack of investment / government funds means that nothing much can or will be done in the immediate future. At the moment foreign investors in mining projects are expected to provide sufficient funds to upgrade the port (and rail) facilities to get production to market. Not surprisingly, it is a problem that deters investors.
Possible (Pragmatic) solutions:
Ships:
Providing ships for the North Koreans to operate is an almost impossible task. No one issrisk.com 42 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis will provide the investment. On the other hand, introducing a foreign operator with a suitable fleet (30k to 60k vessels) to joint venture with a state owned corporation would provide the security financiers would require as well as the professionalism that harbour masters would feel comfortable with.
Ports:
Not being recognised by the international financial institutions like the World Bank,
IMF and the Asian Development Bank, the DPRK cannot access affordable infrastructure funding in its own right. Credits for political easements would be the only way that the DPRK’s infrastructure can be re-built.
There are positives for the DPRK in that neighbouring countries (ROK and China in particular) have a keen interest in the country’s mining assets. Access poses a big problem and they have offered to build railways and improve ports for this.
I have already commented on the development that China. Mongolia and Russia have undertaken to access the port of Rajin in the Economic Development Zone of
Songbong. It will be of great interest to see how it progresses.
Mongolia has expressed a strong desire to move its bulk exports via Russia and down into Rajin rather than through the congested ports of China. This is the port that a lease is being negotiated with Mongolia and China as pointed out some 8-9 months ago. Negotiations have stalled, but are still being thrashed out and likely to proceed very soon.
China also needs a direct Pacific outlet for its own bulk shipments of coal and iron ore and Rajin would be most suitable. Russia has also thrown its hat in the ring. issrisk.com 43 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Scope for Expansion
If the country’s mineral resources are to be exploited as intended by the government then all infrastructure must be expanded and made efficient. It is nonsense that there are no other ports than Nampo that can handle Panamax vessels near to where the resources are. Upgrades would introduce pretty much most of the other ports into this category, with the exception of Chongjin due to the significant silt issue it faces. To be financially efficient, bulk ore should be carried by either 50,000dwt vessels or even better, 75,000dwt to 100,000dwt.
It is totally logical to draw Russian, Chinese and Mongolian investment for the development of Rajin in the north east. For the south west however, the expansion of Nampo (the DPRK’s largest port) may be restricted by prevailing tidal problems.
This is why the west sea barrage was built. Radical thinking may be required if the growing capacity of the region is to be adequately serviced.
There is an island off the coast just by the mouth of the Taedong River which could be used for a number of purposes. It is called Suk island by the locals.
issrisk.com 44 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Suk is ideally situated (Refer to Satellite image below) and has a natural and sheltered deep water bay. It is ideal to develop as an economic development zone to attract foreign investment with a major deep water harbour that could possibly berth cape sized vessels (100k+). There are the Unryul and Sohaeri iron ore mines on the coast as well as others not too far into the hinterland that will require shipping facilities.
Pyongyang! !
West!Sea!Barrage! Taedong!River!
Nampo! ! Songnim! Suk!Island! ! !
The overburden of Unryul mine is currently being used to build a causeway out to Suk
Island and it would not take very much to complete the project. There is an efficient rail system in the Province which connects to Nampo and further northward to
Pyongyang. The island could be an ideal staging point in the Yellow Sea to access
China and the ROK.
Mineral dispersal in DPRK issrisk.com 45 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
The DPRK is known to have major deposits of iron ore, zinc, bauxite, copper, coal, magnesite, calcite, nickel and gold, other metals available (mining): manganese, graphite, tungsten, caesium, lithium, titanium dioxide, silver, platinum, antimony and vanadium and rare earth elements.
A significant deposit of graphite was discovered south west of Wonsan on the east coast in 2011, and it is yet to be fully verified.
issrisk.com 46 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
IRON and STEEL
The main iron and steel opportunities are clustered in the north east and south west of the country
Musan mine regarded as largest iron ore deposit in Asia. It is yet to be fully explored. Located 20km from the Chinese Province of Jilin. Musan and Kim Chaek Steel have been integrated into a single project to be developed.
Unryul, Anak and Zaeryong: Hematite iron mines with the option for direct mine shipping of lump ore to China
Pyoksong: Titano-magnetite suitable for conversion to pig iron and with the residual of titanium bearing slags.
Based on reports by a Japanese firm in the 1960s, there is an additional 10b/T of FeCO3 in South Hwangae Province, but no work is planned until a suitable process for beneficiation is available
There are also two small iron ore mines of very high quality (metallurgical type iron used for electrical component purposes) in South Hamgyong Province, but there are no plans for exploitation for the moment
issrisk.com 47 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
GOLD
According to a (South) Korean Energy Economics Institute presentation in 2006:
" DPRK’s gold reserves (ingots) held were between 1,000 and 2,000 tonnes i.e. between 32.15m and 64,30m troy ounces
" That there are more than 50 mines across the country.
Almost all operating mines are now under the control and authority of the military and managed under separate companies
The total ‘in ground’ reserve is difficult to determine without detailed review. Some details currently available (See map below for geographic breakdown):
" Unsan North Pyongan Province In 2001 Clough Engineering of Australia conducted inspection under sponsorship of the UN Office for Project Services. They estimated 1,000 tonnes of gold reserves or 32.15m ounces.
" Current production estimated at 15,000 ounces a month
" Currently exploration and development is taking place of two blocks totalling over 13,002 sq km, east of Pyongyang
" 1.3m ounces current resources but potential is greater than 3m ounces
issrisk.com 48 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
COAL
" The DPRK has the 5th largest coal reserves in Asia and the 21st in the world. Reserves estimated to be 20.5 billion tonnes of which:
# 16b tonnes is lignite(brown coal), primarily in the north-east and 4.5b tonnes is anthracite (hard coal) in the south
# Annual production ranged from 37.5m tonnes in 1985 but averaged about 20m tonnes a year through the 1990s to 2005, when the output was 24m tonnes.
# Much of the production is used for power generation and was topped up by imports of up to 2m tonnes in the lean years between the 2000 and 2004.
" Nominal exports at odd years peaking to 3m tonnes in 2005.
$ Production levels can be easily improved by nominal investments in plant, equipment and fuel.
issrisk.com 49 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
" Although not thoroughly explored, evidence of substantial reserves of coal bed methane for commercial exploitation
issrisk.com 50 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.4 THE CURRENT NUCLEAR SITUATION – CONTEXTUALISATION – WHAT IS IT ALL ABOUT?
1.4.1 CONTEXTUALISATION
This is far from simple to convey to readers. One must first understand the logic and historical reasoning of the leadership of the DPRK in respect to their pursuance of a nuclear program. But, and importantly, from where did such a desire emanate in the first place?
The sustained US policies of sanctions, their continuation of the North’s isolation, and seemingly endless rounds of war games have all merely led to the nuclear build up in
North Korea, justifying continuing US militarization in the region along with their allies.
This has emboldened right wing protagonists, and it is also this bolstering of the right-wing forces in South Korea and particularly Japan that has sustained a greater risk of another war on the Korean peninsula.
I mentioned at the beginning of this report how the United States has assisted in the creation of the DPRK’s nuclear program with what I labeled a ‘bold statement’, or perhaps not? The following sequence of chronological events, extracts taken from multiple publications and archives (all accredited), perhaps help to explain this wild assertion:
The Precedents:
6 August 1945 The Enola Gay, a U.S. Army Air Corps B-29 bomber, drops the atomic bomb "Little Boy" on Hiroshima.
— Richard Rhodes, "Tongues of Fire," Chapter 19 in The Making of the Atomic Bomb (New York: Simon & Schuster, 1986).
issrisk.com 51 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
9 August 1945 Bock's Car, a U.S. Army Air Corps B-29 bomber, drops the atomic bomb "Fat Man" on Nagasaki.
— Richard Rhodes, "Tongues of Fire," Chapter 19 in The Making of the Atomic Bomb (New York: Simon & Schuster, 1986). ------
And what came after:
August 1945 In a discussion with American reporter Louis Strong, Mao Zedong says, "the atomic bomb is a paper tiger that the U.S. reactionaries use to scare people. It looks terrible, but in fact it isn't. Of course, the atom bomb is a weapon of mass destruction, but the outcome of war is decided by the people, not by one or two new types of weapons."
— Mingquan Zhu, "The Evolution of China's Nuclear Nonproliferation Policy," Nonproliferation Review, Winter 1997, p. 41.
1 October 1949 The Chinese Communist Party establishes the People's Republic of China in Beijing.
— John Wilson Lewis and Xue Litai, China Builds the Bomb (Stanford, California: Stanford University Press, 1988), p. 5.
1 November 1949 China establishes the Chinese Academy of Sciences by merging the Academia Sinica in Nanjing and the Beiping Academy in Beijing.
— John Wilson Lewis and Xue Litai, China Builds the Bomb (Stanford, California: Stanford University Press, 1988), p. 43.
14 February 1950 China and the Soviet Union sign the "Sino-Soviet Treaty of Friendship, Alliance and mutual Assistance."
— Ministry of Foreign Affairs, the People's Republic of China, "Conclusion of the 'Sino-Soviet Treaty of Friendship, Alliance and
Mutual Assistance'," 17 November 2000, www.fmprc.gov.cn; John Wilson Lewis and Xue Litai, China Builds the Bomb (Stanford,
California: Stanford University Press, 1988), p. 7.
17 July 1950 General Douglas MacArthur tells U.S. Army Department officials in Tokyo about his plan for an amphibious invasion behind enemy lines and to "destroy North Korea." MacArthur also says he sees "a unique use of the atomic bomb— to strike a blocking blow" in case China entered the war.
— Bruce Cumings, "Introduction: The Course of Korean-American Relations, 1943-1953," in Bruce Cumings, ed., Child of
Conflict: The Korean-American Relationship 1943-1953 (Seattle: University of Washington Press, 1983), p. 53. issrisk.com 52 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
October 1950 China enters the Korean War.
- John Wilson Lewis and Xue Litai, China Builds the Bomb (Stanford, California: Stanford University Press, 1988), pp. 7-8;
Stanley Weintraub, "To the Yalu," Chapter 11 in MacArthur's War: Korea and the Undoing of an American Hero (New York: Simon
& Schuster, 2000), pp. 196-220.
30 November 1950 During a press conference, President Truman is asked if the United States would consider using the atomic bomb in Korea, and he replies, "There has always been active consideration of its use. I don't want to see it used. It is a terrible weapon, and it should not be used on innocent men, women and children who have nothing to do with this military aggression— that happens when it's used." The statement is very controversial, and draws strong international criticism, even from U.S. allies.
— Stanley Weintraub, MacArthur's War: Korea and the Undoing of an American Hero (New York: Simon & Schuster, 2000), pp.
257-259; Roger Dingman, "Atomic Diplomacy During the Korean War," International Security, Vol. 13, No. 3, Winter 1988/1989, pp.
65-66; Peter Hayes, Pacific Powderkeg: American Nuclear Dilemmas in Korea (Lexington: Lexington Books, 1991), p. 11.
9 December 1950 General MacArthur "requests commander's discretion to use atomic weapons."
— Bruce Cumings, The Origins of the Korean War: Volume II, The Roaring of the Cataract 1947-1950 (Princeton: Princeton
University Press, 1990), p. 750.
24 December 1950 General Douglas MacArthur sends a list of targets to the Pentagon and asks for 34 atomic bombs to create "a belt of radioactive cobalt across the neck of Manchuria so that there could be no land invasion of Korea from the north for at least 60 years."
— Stanley Weintraub, MacArthur's War: Korea and the Undoing of an American Hero (New York: Simon & Schuster, 2000), pp.
263-264; Bruce Cumings, The Origins of the Korean War: Volume II, The Roaring of the Cataract 1947-1950 (Princeton: Princeton
University Press, 1990), p. 750; Peter Hayes, Pacific Powderkeg: American Nuclear Dilemmas in Korea (Lexington: Lexington
Books, 1991), pp. 9-10.
27 January 1952 In a private hand-written memorandum, President Truman considers the possibility of using nuclear war to end the stalemate in the cease-fire talks in Panmunjom. "This means all-out war. It means that Moscow, St. Petersburg, Mukden, Vladivostok, Peking, Shanghai, Port Arthur, Darien, Odessa, Stalingrad and every manufacturing plant in China and the Soviet Union will be eliminated." The memo became publicly available in 1972.
— "Truman, in 1952 Memos, Considered Nuclear Strike," New York Times, 3 August 1980, p.22, in Lexis-Nexis,
web.lexis-nexis.com.
issrisk.com 53 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
18 May 1952 In a private hand-written memorandum, President Truman addresses his concerns over the failure of the Korean truce talks. "Now do you want an end to hostilities in Korea or do you want China and Siberia destroyed? You may have one or the other; whichever you want, these lies of yours at this conference have gone far enough. You either accept our fair and just proposal or you will be completely destroyed." This memo became publicly available in 1972.
— "Truman, in 1952 Memos, Considered Nuclear Strike," New York Times, 3 August 1980, p. 22, in Lexis-Nexis,
web.lexis-nexis.com.
Mid-1952 The Joint Chiefs of Staff ask President Truman to authorize the deployment of "non-nuclear components to forward areas" in Pacific theatre bases under U.S. control (Alaska, Guam, Hawaii, and Okinawa) in case the security situation worsened in East Asia.
— Robert S. Norris, William N. Arkin and William Burr, "Where They Were," The Bulletin of the Atomic Scientists, Vol. 55, No. 6,
November/December 1999, p. 30.
31 March 1953 During a Special National Security Council Meeting, President Eisenhower outlines two goals if atomic weapons are to be used during the Korean War. Despite the lack of good tactical targets, using atomic weapons will be worth the cost if the U.S. can "achieve a substantial victory over the communist forces, and get to a line at the waist of Korea." President Eisenhower and Secretary of State Dulles agree that the taboo surrounding nuclear weapons would have to be destroyed.
— "For Eisenhower, 2 Goals if Bomb was to be Used," New York Times, 8 June 1984, p. A8, in Lexis-Nexis, web.lexis-nexis.com.
8 April 1953 According to a U.S. Special Intelligence Advisory Committee estimate, the communist forces in Korea would recognize the use of atomic weapons as "indicative of Western determination to carry the Korean War to a successful conclusion." However, the report is unable to conclude whether or not this would be sufficient to coerce the communist forces to make the concessions necessary for reaching an armistice arrangement. The report says, "We believe the communist reaction would be in large part determined by the extent of damage inflicted."
— "For Eisenhower, 2 Goals if Bomb Was to Be Used," New York Times, 8 June 1984, p. A8, in Lexis-Nexis,
web.lexis-nexis.com.
13 May 1953 During a National Security Council Meeting, Generals Bradley and Hull recommend that the use of atomic weapons would be necessary if military operations are expanded outside of Korea. President Eisenhower expresses his belief that using issrisk.com 54 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
tactical atomic weapons against Chinese communists forces in dugout bunkers would be more cost effective than current conventional weapons.
— "For Eisenhower, 2 Goals if Bomb Was to Be Used," New York Times, 8 June 1984, p. A8, in Lexis-Nexis, web.lexis-nexis.com.
20 May 1953 During a National Security Council Meeting, President Eisenhower concludes that if the U.S. wishes to pursue a more positive action on North Korea, the war would need to be expanded beyond Korea and it would be necessary to use atomic weapons. Eisenhower expresses concern about the Soviet response, but dismisses any Chinese retaliation as "the blow would fall so swiftly and with such force as to eliminate Chinese communist intervention."
— "For Eisenhower, 2 Goals if Bomb Was to Be Used," New York Times, 8 June 1984, p. A8, in Lexis-Nexis, web.lexis-nexis.com.
21 May 1953 U.S. Secretary of State Dulles meets with Indian Prime Minister Jawaharlal Nehru. During talks, Dulles says that if the Korean armistice negotiations fail, "the United States would probably make a stronger, rather than a lesser military exertion, and that this might well extend the area of conflict." This veiled threat is expected to be relayed to the Chinese.
— Bernard Gwertzman, "U.S. Papers Tell of '53 Policy to Use A-Bomb in Korea," New York Times, 8 June 1984, p. A8, in
Lexis-Nexis, web.lexis-nexis.com.
27 July 1953 The Korean War Armistice is signed. Some people believe that President Eisenhower's implicit threats to use nuclear weapons result in the armistice.
— "Agreement between the Commander-in-Chief, United Nations Command, on the One Hand, and the Supreme Commander
of the Korean People's Army and the Commander of the Chinese People's Volunteers, on the Other Hand, Concerning a Military
Armistice in Korea," signed at Panmunjŏm, 27 July 1953; Rosemary J. Foot, "Nuclear Coercion and the Ending of the Korean
Conflict," International Security, Vol. 13, No. 3, Winter 1988/1989, pp. 92-93; Rosemary J. Foot, The Wrong War: American Policy
and the Dimensions of the Korean Conflict, 1950-1953 (Ithaca: Cornell University Press: 1985), pp. 204-231;
30 October 1953 President Eisenhower promulgated a new defence strategy, NSC-162/2, that would assure national security for less cost. No longer would the United States be drawn into limited conflicts and use conventional weapons, as in Korea. Massive retaliation with atomic weapons would be the threat and response, if necessary. And, thus, a foundation was laid for the escalating nuclear threat - counter threat - dysfunction that poisons the Korean peninsula and imperils the world.
Maria Hohn and Seungsook Moon, Eds. 2010. Over There: Living with the U.S. Military Empire from World War Two to the
Present. Chapel Hill, NC: Duke University Press. p.132.
issrisk.com 55 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.4.2 WHAT IS IT ALL ABOUT?
In light of these deliberations and threats one can but ponder where the DPRK’s desire for a nuclear deterrent has come from. The glaring sense of a continued feeling of insecurity, for quite literally decades, with the primary protagonist sitting on their doorstep, in a technically unresolved conflict, nuclear and evidently not afraid to use their nuclear ‘deterrent’, then one could not be blamed too much for being somewhat insecure and paranoid under such circumstances.
As pointed out, technically, the North and the South are still in a state of conflict with each other, and for that matter - the U.N., in that they were the main signatories to the
Korean Armistice Agreement, the U.N. actually representing the South and the allies.
The Armistice Agreement was essentially the agreement brokered to end the Korean
War. It was signed by U.S. Army Lieutenant General William Harrison, Jr.
“representing” the United Nations Command (UNC), which to this day is still located in
South Korea, and on the North Korean side General Nam Il, representing the North
Korean People's Army and also representing the Chinese People’s Volunteer Army.
The armistice was signed on July 27, 1953. Its primary purpose was to "ensure a complete cessation of hostilities and of all acts of armed force in Korea until a final peaceful settlement is achieved." However, no "final peaceful settlement" has ever been signed. The signing of the armistice established the Korean Demilitarized
Zone (a de facto new border between the now two separate nations).
In short, it put into force essentially nothing more than a cease-fire and finalized repatriation program for prisoners of war. The Demilitarized Zone became a buffer issrisk.com 56 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis between the two states. This condition has remained in force until now.
The DPRK, over the last ten years, has repeatedly asked the US to sign a peace agreement, both in their media and in overtures to the US government directly.
However, most pertinently the DPRK Ambassador to the United Nations, based in
New York, has recently spoke out on this subject publically, and addressing the media-section (i.e. many journalists and respected members of the professional media affiliates of the UN in New York) for the first time ever. This comes at a time when the DPRK is preparing to celebrate the 60th Anniversary of the Korean War.
Another citation is deemed appropriate for the events from early 1994, through to
2003. In early 1994 the US was accusing the DPRK of setting up a nuclear programme, which the DPRK did not deny, at the famous Yongbyon reactor site. It became public knowledge that the US was planning a pre-emptive strike to ‘take out’, or neutralise the whole site. Alarm was rife, and American expatriate families were evacuated from Seoul in the ‘dangerous summer’ of 1994.
It was the pro-active and courageous actions of former President Jimmy CARTER, who applied to the US State Department in June 1994 to visit Pyongyang to negotiate directly with President Kim Il Sung. The State Department turned down the request and President Carter refused to accept this, even though the serving US government was determined to deny the chance to visit and negotiate.
Carter was not backing down and finally the US government relented and the visit took place and a serious war-like confrontation and US-strike was averted, and replaced by ‘The Agreed Framework of 1994’ under which the US was to build a
US$2billion light-water reactor to provide the DPRK with the much needed energy it needed, and quid-pro-quo was that the DPRK would give up all of it’s nuclear issrisk.com 57 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis weapons ambitions.
This seemed a workable and mutually beneficial solution. However, the US subsequently accused the DPRK of reneging on their side of the agreement. From the DPRK perspective the US was slow to implement the plan, constructions were repeatedly delayed, the plans for the power-plant construction never went past the ground-breaking stage, and the DPRK became disillusioned with the sincerity of the
US side.
The EU too was a contributor of capital, and was continuously disappointed that the
US would not involve the EU in the decision making progress. It emerged that the
US, based on bad-intelligence and analysis, and taking advice and guidance from
‘doomsayers’, completely and erroneously believed that the DPRK would not survive into the 21st Century as a nation, and so they dragged their heels on anything other than earth-moving.
So, the DPRK believe it had been cheated by a US side that was insincere, and could no longer be trusted. What was worse was that the US blamed the DPRK for the collapse of the Agreed-Framework, in a one-way stream of blaming the DPRK for not honoring agreements that continues to this day. This whole period ended with the visit of the overly aggressive James Kelly to Pyongyang in the early 2000s. The buildup of tensions, satellite-launch attempts, weapons and nuclear programmes should all be taken in the context of the failure of the Agreed Framework.
Note; KIM Il Sung passed away on 8th July 1994, shortly after making a series of live TV appearances on national TV with Jimmy Carter. Jimmy Carter held a live press briefing in Pyongyang live with CNN outside the Koryo Hotel to the world, so that this historic agreement that diffused tensions, was publically recognised and could begin a new era of cooperation and prosperity. issrisk.com 58 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
The Russians were never happy with the July 1994 agreement, as they were cut out of the potential to supply the civil nuclear-energy power-programme that the DPRK needed and the US agreed to supply.
In the first few decades after the declaration of the state the DPRK was actually a more powerful economic force than South Korea. As pointed out previously the situation actually reversed over the interceding years and the North became much poorer and financially and technologically weaker than the South. A position that the
North has been systematically denied the opportunity from which to break free from by continuously suffering from the imposition of sanctions.
The South had largely always been the bread basket for the entire country (prior to division) sitting with the bulk of the arable land. The North on the other hand sits atop of vast natural resources and minerals, much of it untapped.
issrisk.com 59 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.4.3 The Role and Effect of Sanctions
The North lacks the finances, infrastructure and international support to access and utilise to their full capacity their abundant natural resources due to repetitive rounds of sanctions.
Sanctions are not only pointless acts and gestures, they are counter-productive, when proscribed states are further denied the opportunity of open commerce and ideas and development. As a result they consequently become even more closed, paranoid and insular. The rationale for sanctions is allegedly to punish and cajole, it is in fact a collective denial of human rights. The weakest elements of society suffer first and longest from sanctions. But then arguably it is the general populace sanctions are ultimately designed to affect so as to perhaps effect change from within.
The denial of fuel subsidies for example permeates every facet of life in the DPRK, from denying the farmers the ability to efficiently and ‘timely’ bring in their harvest to reduced public transport and power supply to the lack of resources and supplies to hospitals and schools. Children on a nation wide level doing homework by candle light… in the west if this happened it would be labeled a blatant denial of basic human rights. How does this further the cause of denuclearization?
To help place this assertion in an appropriate context the following statements from the British House of Lords Select Committee on Economic Affairs help:
HOUSE OF LORDS -Select Committee on Economic Affairs - 2nd Report of Session 2006–07
issrisk.com 60 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Economic sanctions used in isolation from other policy instruments are extremely unlikely to force a target to make major policy changes. Even when combined effectively with other foreign policy instruments, sanctions usually play a subordinate role. They may even be counterproductive when a target regime responds by increasing its internal control over resources.
Often, greater emphasis on economic, diplomatic and security incentives will be more effective. Nevertheless, economic sanctions can, on occasion, contribute substantially to achieving objectives when combined appropriately with other instruments of foreign policy.
Comprehensive sanctions are likely to result in severe suffering among the general population. Their application would not be compatible with the Government’s principle that sanctions should “hit the regime rather than the people”.
Reliance on sanctions as the main means of resolving the current disputes with North Korea and Iran appears a recipe for failure. We endorse the Government’s support for the recent agreement with North Korea and the phased lifting of sanctions as part of that Agreement.
The range and scope of the current sanctions from the U.N., US and Europe are clearly having an impact on the country and the people. The recent round of US sanctions in response to the February nuclear test is particularly damaging and also dangerous. These sanctions are targeting banks in the DPRK purported to be providing financial support to the DPRK’s nuclear weapons program, including the
Foreign Trade Bank, Pyongyang's main foreign exchange bank.
Although the sanctions are US originated and aimed at US entities and individuals they are having a knock on effect to other parts of the world. For example, humanitarian groups in Europe are reporting that European banks are blocking transfers to the banks in the DPRK as a consequence of fears of losing business with
US banks who could by default be punished for trading with European banks who facilitate financial transactions to the DPRK. issrisk.com 61 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
So even though it is a US specific set of sanctions the latent consequences run deeper. The fact that international humanitarian aid is now being affected by one country’s individual sanctions against the DPRK is actually in contravention of the UN
Charter on Human Rights and the European Union Charter of Human Rights. The legality of such unilateral actions rippling into the international community is questionable and they set a dangerous precedent.
The country as previously mentioned is at a critical and important juncture, the preparations and mechanisms creating the conditions for economic and internal political reforms are at a vulnerable stage. The depth and impact of these sanctions could potentially undermine the move towards such reforms. It may however be as counterproductive as most of the other strategies employed against DPRK in that may stimulate something very different from what is intended.
That is the further acceleration of deployment of the alternate global payments system which is evolving to facilitate secure (non U$ denominated, non-SWIFT mediated) trade between other SCO and 'Axis of Evil' economies. Meanwhile the validity of the over enthusiastic application of sanctions against Iran has already led to legal challenges in the EU by companies protesting the indiscriminate damages which have resulted."'
Consequently, the threats and imposition of sanctions by the international community carry little weight in terms of forcing change; the offers of economic incentives tied to peace and a real reform program are much more attractive and quite possibly present the only means to create the circumstances of change - including the dismantlement of weapons programmes (what the US wants) and economic development (what the issrisk.com 62 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis government and it’s people want).
The economic empowerment of the people may be something they themselves and the DPRK government will be loathed to lose and hence a long term pragmatic approach to engagement is called for. Essentially the very large and juicy carrot and rather small and unobtrusive stick approach will likely yield more tangible reforms than the more hostile confrontational approaches to date.
Such actions have pushed the country ever further in their pursuit of a nuclear capability or deterrent. The country keeps, on a fairly permanent guard, which costs significant amounts of money, the largest standing army in the world.
Were this army to be reduced in scale, and therefore the budget, the immense saving could be redirected into economic and social development in the country and spur economic reforms. The armed forces are a deterrent; nuclear weapons are a deterrent, and relatively speaking at least in terms of the size of the North’s armed forces and the financial drain on the country, well, nuclear weapons are a more cost effective alternative.
Is the above statement removed from reality or steeped in some form of biased opinion? Perhaps the words of former CIA analyst Robert
Carlin carry some resonance with the above?
All the alarmism in the headlines misses a counter trend that a CIA analyst raised on PBS News Hour:
ROBERT CARLIN, Former CIA and State Department Intelligence Analyst: I think the rhetoric is at a high level. issrisk.com 63 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
I would hope that the events over the past couple of days in North Korea would provide an opportunity for us to lower the temperature a little bit. We had some pretty important developments in terms of policy and personnel from the North Koreans over the last two days. I think we should step back.
JUDY WOODRUFF: What are you referring to?
ROBERT CARLIN: I’m referring to the lower profile that the military now has in the top-level leadership in North Korea.
I’m referring to something that the North Koreans — they don’t use this term, but I will. It’s the nuclear dividend. It’s the ability now that they have nuclear weapons, they say, to divert more money for their civilian economy. And the question is, is there an opening there? Does that provide some element of stability in this situation that we can use?
JUDY WOODRUFF: You mean because they feel more secure about their nuclear capability, they then have the space to expand in the economic front?
ROBERT CARLIN: Yes. Yes.
issrisk.com 64 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.5 Political Insecurity and Isolationism
Just under seven years ago when assessing the first nuclear test in the DPRK the author wrote: “The political paranoia of the North Korean Regime emanates largely from its treatment by the international community. The cultish nature of the leadership does little to help matters. The isolationism of the country is both internationally imposed and self imposed”. This is still true in respect of the treatment of the country by the international community, and yes the cultish nature surrounding the Kim family does little to assuage foreign interpretations of the government and country.
However, these foreign interpretations are mostly founded on anecdotal evidence and stories about the North that the very media who provide them state that it is all but impossible to get accurate and reliable information out of the country.
Even when journalists do go in, both on managed and controlled trips or by other means such as subterfuge, posing as academics, then clearly the picture presented is either going to be jaundiced or skewed, either way, not particularly reliable. It is necessary to refer to this as quite simply put; there are few and far between regarding the DPRK who actually have even a mediocre grasp on the internal dynamics and thinking in the country.
The philosophy of ‘Juche’, (self reliance) helping to create a culture cut off from the outside world. It has undoubtedly had the greatest influence in the development of an isolationist position and mindset in the North and clearly governed their peculiar approach to interaction with the world at large, it has also until now greatly limited their issrisk.com 65 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis global strategic view.
However, the demise of communism and socialism as an ideology has also been a contributory factor to the DPRK’s current circumstances; it was not a single catalyst, in so far as that North Korea was already very much a lone state in the form of extreme socialism and communism practiced.
Given the internationally imposed, and to a degree self imposed isolationism, and the subsequent absolutism of the Regime’s political thinking, fomented by their unique circumstances in the latter half of the 20th century, then it is not a surprise that extreme measures are adopted through a paranoid belief that the world is against them. The issue of sovereignty and security are paramount in the thinking of the leadership and shape and govern their approach to and stance in negotiations. For example, the withdrawal from the Non Proliferation Treaty, NPT, in 2002 was again a measure of brinkmanship and a negotiating tool as perceived by a paranoid mindset of a paranoid state.
The threats to continue relentlessly with a nuclear fissile development program were not just sabre rattling. The thinking within this regime was that they needed an ace to play in the game with the big boys and big boys all have big bombs, paranoia creates and stimulates paranoia.
issrisk.com 66 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.6 Political and economic reforms
Much of the rhetoric that has emanated from the North since February has been designed to serve several critical functions. Firstly, the consolidation of Kim Jong
Un’s power base and sealing his position as the new great leader.
Secondly to reassure the party, the military and the people that the country is now secure and that that sovereign security will now be guaranteed and the DPRK has faced down the great powers that threatened them. Thirdly, they can now negotiate with these powers on a ‘level playing field’ in the knowledge they are secure.
This now allows them to turn their attention inward and focus on development.
Clearly they face massive structural problems but at least there is a sense that they have the opportunity to start redressing some of the most pressing concerns. It is now accepted within the government that the objectives of the past few months have been achieved.
There are a few more significantly powerful players than others, for example, Jiang
Soong Taek, Kim Jong Un’s Uncle. He is very influential, so much so that he may be the most influential man in the government, the mere fact he simultaneously holds 3 executive functions in government speaks volumes about his stature (refer to influencers section of report). General O Kuk Ryol comes in close behind him.
Many North Korean watchers and analysts infer that Jiang being married to Kim Jong
Il’s sister (who is important, but in reality not that important in respect of the key influencers currently) is where he derives his influence from, it plays some part, but he issrisk.com 67 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis was a close friend and confidant of the late Kim Jong Il. He was unofficially appointed as a regent / mentor to Kim Jong Un after the death of his father and has played a significant role in the direction the country has taken in the past few months.
The real power is in the ‘control’ of the military. In short, there existed for a very long time a two tier economy, the military held sway over the most lucrative sources of income, gold mining and other minerals, incidentally, at this juncture the vast majority of gold mines still fall under the stewardship of the military. The civil institutions were simply left with the crumbs. That is changing, and importantly it is changing with the compliance and consent of the leadership of the Army. This change in emphasis away from the military control of the economy has actually been taking place since early 2012 with the military essentially withdrawing gradually from that primacy position in terms of economic management that they held with such a grip from 2006 to 2012.
There are still some hawks in the party and the Military, but the Military has been more engaging and open to change than the actual Party at this point according to the sources. Gen O Kuk Ryol was very close to Kim Jong Il, he and General O privately facilitated many changes. When Kim Jong ll realized after his stroke that his health was not good, he decided to accelerate the pace of changes, thus his appointment of
Jiang Soong Taek to the NDC. He also made other appointments to facilitate this process.
There are changes taking place across different organs of government which are indicative of a slowly changing mindset at the upper echelons of the leadership.
There is a quiet and general revamp from county, city, provincial level involving a younger cohort of 3rd generation figures coming into play. At the mid level the 2nd generation is emerging as a force for change. The significant changes are occurring issrisk.com 68 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis as a natural progression at the highest level of government though, a natural weeding out as such.
However, this weeding out at the Party level is currently quite interesting, it is more so by attrition, many just simply falling off the perch, 2nd generation members are taking a greater role in government, people in mid to 40s and 50s are now starting to come into play in the Supreme People’s Assembly (SPA) for example, and the Party Central
Committee and the Cabinet, who are working closely with the Supreme People’s
Assembly to cede control from the military for economic management, the army wants to be the army not a de facto alternative economic ministry.
Director generals’ positions are largely appointed from the 2nd generation, with a caveat – in ministries where the economic changes will be most critical. Whereas 3rd generation members are taking appointments at the lower levels such as city and provincial party posts. The, old stalwarts of the first generation retain authority via key positions in the central committee and the Supreme People’s assembly and across the ministries.
The lauded experimental agricultural reforms since 2011 have yielded benefits, and contrary to western perception this policy was instigated by Kim Jong Il (actually around the end of 2002 and beginning of 2003 but only now gaining some form of traction.). Now Kim Jong Un, his son, has taken it forward since assuming power.
More importantly such examples are emboldening the 2nd and 3rd generation to seek greater changes, albeit in a controlled fashion with the view that gradual and slow is better than nothing.
As previously discussed, the dynamics of internal changes and appointments at play are essentially hidden from sight of the world. From the early 2000s a reformist element managed to win the ear of Kim Jong Il and sell the idea of measured reforms. issrisk.com 69 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Neither the country nor the regime was ready for it, hence the early attempts faltering.
They engaged with the Chrysanthemum group in Beijing for guidance and direction at that time.
By 2006 the military had stepped in again to assume total control of the economy.
The then PM, Pak Pong-ju, was relieved of his post and moved sideways, along with many of his then vanguard. The office of PM became quite ineffective during the next 5 years whilst the military wielded the power. Although by 2011 things were changing again, Kim Jong Il had come to the conclusion that reforms were essential for the regime to survive and the country to sustain them and by default – grow.
By 2012 the military begun withdrawing from economic management and handing over control and responsibility to the strengthened civilian institutions, General O Kuk
Ryol was charged by Kim to oversee and direct this process from the military.
Several other critical appointments made by Kim in that year and just prior to his death that have begun to bear fruit, particularly in terms of creating channels of communications between the various ministries and bodies of government. For example, Hyon Yong-chol, the Chief of the General Staff was appointed by Kim, the importance of Pak Pong-ju returning to the fold cannot be over stated enough; he is a reformist with strong credentials, credibility with the Chinese and presents a good chance for the beginning of measured and controlled reforms.
The office of the PM and the PM position will begin to rise in importance again with this development against the backdrop of other reformist mechanisms being put in place. The appointment as commercial attaché to China, based in Beijing, of Paek
Hyon is also of interest, he is an ally of Pak Bong-ju and respected by the Chinese, again he is another reformist. So expect increased economic consultation with
Beijing regarding restructuring. There is a mindset that the need to create credibility and acceptance is just around the corner and what is happening now is the precursor to change. If the nation feels secure internally in its perception that their sovereign issrisk.com 70 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis security is assured and the world powers are at bay due to nuclear capabilities then it may take a few more years or more but there is a growing consensus within the 2nd and 3rd generation that to survive they must adapt.
1.7 THE NUCLEAR PROGRAM, SATELLITE LAUNCH AND POSTOURING
Chronology of key events from 1994 – June 2013
October 1994: The U.S. and DPRK sign a pact intended to freeze North Korea’s nuclear program in exchange for fuel and assistance in constructing a light water nuclear reactor for power generation.
October 2002: North Korea admits the existence of its nuclear program in violation of the 1994 pact.
December 2002: North Korea evicts International Atomic Energy Agency inspectors from the U.N. from the country. The regime restarted the Yongbyon nuclear reactor after evicting the inspectors.
January 2003: Pyongyang officially announces it’s withdrawal from the Non Proliferation Treaty, NPT.
May 2005: North Korea reports it has removed fuel rods from the Yongbyon reactor, the key step towards harvesting plutonium for missiles.
July 2006: North Korea provocatively test fires missiles, which is constituted as a failure as the missiles explode within 45 seconds of launch.
issrisk.com 71 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
October 9th 2006: The DPRK tests a nuclear device in an underground experiment at Kilju in the North East of the country. The test is deemed partially successful by Russia, Japan and South Korea. November 12th 2006: China announces North Korea s agreement to resume 6 Party talks on the 18th of December 2006.
January 2007: North Korean official Song Il-ho was reported to have told his Japanese counterpart Taku Yamasaki that whether the North Koreans conduct a second nuclear test depends on "US actions in the future".
January 2007: In-between-round talks between North Korea and the US are held in Berlin, Germany. Certain areas of agreement have been reached, as confirmed by both sides. North Korea claims these were bilateral negotiations; the US claims these "set the groundwork for the next round of six-party talks".
February 2007: Reports emanating from Washington suggest that the CIA reports in 2002 that North Korea was developing uranium enrichment technology overstated or misread the intelligence. U.S. officials are no longer making this a major issue in the six-party talks.
February 2007: The fifth round of the six-party talks concludes with an agreement. Pyongyang promises to shut down the Yongbyon reactor in exchange for 50,000 metric tons of fuel aid, with more to follow upon verification that the site has been permanently disabled. IAEA inspectors will be re-admitted, and the United States will begin the process of normalizing relations with North Korea.
March 2007: The sixth round of six-party talks commences in Beijing.
issrisk.com 72 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
July 2007: North Korea announces it is shutting down the Yongbyon reactor after receiving 6,200 tons in South Korean fuel oil aid.
17th July 2007: A 10-person team of IAEA inspectors confirms that North Korea has shut down its Yongbyon reactor, a step IAEA Director Mohamed ElBaradei said was "a good step in the right direction". On the same day, a second shipment of 7,500 tons of oil aid was dispatched from South Korea for the North Korea city of Nampo, part of the 50,000 tons North Korea is due to receive in exchange for shutting down the reactor, according to the February 13 agreement.
11–13 September 2007: Inspectors from the United States, China and Russia conduct a site visit at Yongbyon reactor to determine ways to permanently disable the reactor. U.S. delegation leader, Sung Kim, declared they "saw everything they had asked to see," State Department spokesman Sean McCormack said.
May 2008: Sung Kim, the U.S. State Department's top Korea specialist, returned to South Korea by land across the heavily fortified border after collecting approximately 18,000 secret papers of Yongbyon nuclear reactor activities during a three-day visit to Pyongyang.
June 2008: North Korea hands over 60 pages of documents detailing its capabilities in nuclear power and nuclear weapons
June 2008: North Korea destroys a cooling tower at Yongbyon's main atomic reactor.
October 2008: The US removes North Korea from its State Sponsors of Terrorism list. issrisk.com 73 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
April 2009: North Korea's launch of its Kwangmyŏngsŏng-2 satellite ends in failure.
April 2009: Following a UN resolution denouncing its missile launch, North Korea says that it "will never again take part in such [six party] talks and will not be bound by any agreement reached at the talks." North Korea expelled nuclear inspectors from the country and also informed the IAEA that they would resume their nuclear weapons program.
April 2009: North Korea says it has reactivated its nuclear facilities.
25th of May 2009: North Korea tests its second nuclear device.
2010 / 2011 Fairly quiet on the 38th parallel.
13 April 2012: North Korea's launch of
its Kwangmyŏngsŏng-3 satellite.
12 December 2012: North Korea's launch of its Kwangmyŏngsŏng-3 Unit 2 satellite.
5th February 2013: South Korea's President warned that North Korea could be planning "multiple nuclear tests at two places or more".
12th February 2013: North Korea tests its third nuclear device.
issrisk.com 74 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.8 THE REAL RATIONALE FOR THE TIMING OF THE LATEST NUCLEAR TEST AND POSSIBLE INTENTIONS
1.8.1 Option A - From test capability to deliverable missile?
Although North Korea possesses short and medium range missiles capable of reaching Tokyo, its long range delivery prospects suffered a set back in June 2006 when attempts to launch ICBM capable missiles failed. The satellite launch in
December 2012 was the first tangible indication that there capabilities had now become potentially long range. However, there is a significant difference between launching a satellite and launching a nuclear warhead. Reports on the February underground nuclear test initially varied and still remain inconclusive in terms of analysis and evaluation.
Despite this display of nuclear capabilities, the DPRK's nuclear technology is unlikely to have reached the level of sophistication where it would be able to actually be weaponized or transported and fired via missile. The rather low payload of the test explosion, believed to have been significantly lower than most test-phase nuclear bombs, may indicate that something may have gone wrong with the test, or that the
DPRK's nuclear scientists simply haven't yet reached a certain level of sophistication.
This level of technology determines the difference between a country generally being able to produce nuclear bombs, versus actually being able to produce and successfully launch nuclear missiles. This requires a higher level of nuclear technology as missiles require much smaller, more powerful, stable nuclear technology. The evidence suggests that North Korea has some considerable issrisk.com 75 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis distance to go before acquiring ICBM or short range nuclear capabilities.
1.8.2 Option B - Selling Nukes?
This particular option is highly unlikely and in all probability should not even be a serious consideration in respect of the DPRK. Although some analysts are lauding the idea that
North Korea could sell, or threaten to sell, nuclear material to a third country or a non-state entity, such a course of action does not fit with the thinking or objectives of the regime. Moreover, the international reaction would be draconian to say the least, which is certainly not what the North Korean government wishes for.
The North Korean Government has pledged it will not do this. However, speculative far off observers and analysts may try to paint the picture that the risk is real. They cite possible risks such as the North’s predisposition for brinkmanship and playing with fire and need for new sources of foreign currencies and it therefore cannot be fully ruled out. Yet there is no tangible evidence proffered to support such suggestions so they remain in the realm of ‘creative on the fence analysts’ for now.
The risk of a rogue element acquiring nuclear fissile material has increased in recent years, particularly since the demise of the Soviet Union. For example, since 2002, statistics from the International Atomic Energy Agency (IAEA) show that smugglers have been caught trafficking radioactive substances more than 300 times. Most of these incidents are understood to have occurred in Europe involving non military grade materials. Intelligence indicates however, that the smugglers, who come mainly from the former Eastern bloc, are interested in financial gain and not driven by any religious or ideological urge, although they may have no compunction in selling to radical groups.
issrisk.com 76 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Rigorous controls on nuclear plants and processors and the traceability of plutonium and uranium to origin, or source, limit the likelihood of a rogue regime giving access to terrorists or radicals to weapons-grade nuclear materials. The potential consequences for those responsible would be severe. Although, in 2005 security services globally thwarted 16 attempts to smuggle plutonium or uranium. There were a total recorded 103 cases of trafficking ‘radioactive materials’ in 2005, compared with fewer than 30 in 1996. Fifty-eight incidents were reported in 2002, rising to 90 in
2003 and 130 in 2004. On two occasions small quantities of highly enriched uranium were reported missing. All were feared to have been destined for terror groups, but then in the interceding years we have not as yet seen any such device in the hands of a terrorist group.
These figures demonstrate that a market exists for nuclear and radioactive materials.
The option does therefore remain a risk, albeit a remote one. The problem with the North’s brinksmanship game is that the longer it is played, the greater the risk of a deadly miscalculation by all involved.
1.8.3 Option C - The historic claim - Life support for the Regime?
It is commonly held belief and allegation that the North Korean leadership sanctioned a litany of criminal activity to earn foreign currency in an attempt to shore up the regime according to the ‘informed’ analysts. That list includes, counterfeit U.S.
‘super dollars’, drug smuggling, counterfeit cigarette production, and counterfeit
Viagra and smuggling composite components for uranium enrichment.
issrisk.com 77 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
There are some activities that were clearly criminal and illegal, but with the scope of the activities inferred through widespread allegations few have ever been substantiated with hard evidence, some evidence proffered below does correlate to highly publicized events that took place, many others have had a ‘slant or twist’ added to them to suit agendas of those proffering the information.
An example of these ‘twists’ and ‘slants’ happened on the 16th of July 2013, whilst this report was being compiled. A DPRK flagged ship was searched by Panamanian authorities and found to be carrying ‘weapons’ material destined for North Korea.
Immediately claims surface that it is directly related to the North’s nuclear and missile program. The following day however Cuba issued an apology and claimed ownership of the materials.
Cuba claimed the shipment as its own, after apologising, stating “240 tonnes of obsolete defensive weaponry, which included anti-aircraft missile arrays, nine disassembled missiles - two anti-aircraft missile complexes, nine missiles in parts and spares, two MiG-21bis fighter planes and 15 MiG engines and other weapons parts, all being sent to North Korea to be repaired and returned to the Cuba.
The fact that the components are all quite literally antiquated and obsolete Soviet era items is being overshadowed by the fact that some of those antiquated items are missiles.
IHS Jane's Defence Weekly said Tuesday the 16th of July 2013 that the photo tweeted by President Ricardo Martinelli “appeared to show an "RSN-75 'Fan Song' fire-control radar system."
So one of three interpretations can be deduced from this incident, the Cubans are telling the truth, North Korea’s missile programme is so outdated and they are so issrisk.com 78 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis desperate for defenses that they are buying 60 year old relics? Or the western world is shamelessly lying about the scale and advancements in the North’s missile development programme and the sanctions pertaining to missile development are unwarranted, or the west has completely got it wrong about the North Korean capabilities and does not actually know what they have?
Therefore, whichever scenario it may be, the necessity of sanctions is very questionable. So one must ask, which is it? Are they a sophisticated threat (based on what intelligence?) or they are in such dire straights they really pose no threat?
Incidentally, the same could be said for Cuba in respect of the sanctions arrayed against the country under the guise of it being a mischievous, deviant nation and a significant international security threat.
If the Cubans are lying about the cargo being theirs and the DPRK bought it for defense purposes, what exactly is it that the US fears so much from a ‘Regime’ that can only buy and use outdated and clearly out matched weaponry?
The US has spent considerable effort to paint a picture of geriatric generals and Party stalwarts living a luxurious life on the proceeds of crime, laundering their ill-gotten gains through their nefarious banking system to fund their missile and nuclear development program. They could not be shifting a lot of drugs and Viagra if they can only afford to buy 60 year old weapons systems!
Consequently they use this as further justification for draconian sanctions on the country’s banks, choking off vital foreign currency.
In the meantime, certain US and western banks, notably Wells Fargo and Standard
Chartered, recently pled guilty to knowingly laundering hundreds of billions of dollars of proceeds from the manufacture and sale of illegal drugs. The banks received the issrisk.com 79 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis institutional equivalent of speeding tickets as opposed to capital punishment, the officers in charge continue to be in office and neither California nor South Africa were threatened to bombed into oblivion. I am sure that in this case American ‘justice’ has been duly upheld with no deference given to the long time long established covert support and extensive utilization of the drugs trade by the US CIA.
These measures alone are not sufficient to shore up the regime and it is here where the logic for the nuclear test and its timing require analysis and contextualization.
The culmination of vast array of problems has left the regime having to play a high risk, high stakes game of brinkmanship with the international community.
There are only two precedents of powers to have developed a nuclear capability and rescind it, first South Africa, who were lauded and rewarded for doing so. Libya gave up its nuclear technology and was embraced, albeit temporarily, by the international community and brought back into the fold. Economic support started flowing into the country (and lucrative contracts out of the country!), until the rebellion against the
Regime and when new found allegiances suddenly crumbled.
The lessons from these two examples may have been guiding the rationale of the
North Korean leadership in terms of rewards or risks regarding nuclear disarmament and therefore a degree of contingency planning has been applied by the leadership, i.e. it didn’t work out quite so well for the Libyans.
The Chinese experience of reforming a command style economy, dismantling the
State Owned Enterprises, managing a twin track approach to economic and social reform and attracting Foreign Direct Investment (FDI), are all areas where the North
Koreans will require every piece of advice they can get. Hence the importance of a role for the Chinese in guiding North Korea’s thinking on reforms. Though, the issues of sovereignty and security are the two areas North Korea seek to secure issrisk.com 80 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis above all else. When they have cast iron guarantees on these, the road to reform will be paved. Being able to demonstrate to the world that you have a nuclear capability is a strong position from which to start negotiating.
1.8.4 Option D - Paving the road to reform?
There is more than a tokenistic shift in mindset in the DPRK away from the old almost allergic aversion to foreign capitalists towards a mentality of engagement. Pak Pong
Ju who returned as Prime Minister in April is charged with driving the process. He is not unfamiliar with the problems that they face or lie ahead of them. In 2002 Pak spearheaded the “Improvement measure in economic management," which then called for reforms of the rationing system and reinforcements of management at factories and companies.
This time around he is tackling matters head on. Measured, controlled and experimental reforms are already being tried out across the country. For example the instigation in May 2013 of a system that allows factories and companies to set wages for their workers on a merit based payment, free from government direction, is a significant divergence from previous attempts at reform in the past.
The significance of such steps cannot or should not be undervalued, in North Korea; wages have had a rather unusual role: they were merely one small part of the overall compensation package given by the employer to its employees, and not the most significant part. Until the early 1990s, there was only one employer in the DPRK - that is, the North Korean state.
North Korea from the late 1950s until the early 1990s was a society of comprehensive rationing. Essentially almost nothing was sold via shops in this time, nearly all foodstuffs and many consumer items were distributed by the State. The State (the
issrisk.com 81 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis employer) decided how much grain its employees should eat daily, how much soy sauce he or she can use and how much meat or fish can appear on the family table.
To the Western reader this may sound nothing short of Orwellian, but an important peculiarity of the entire system we should not be overlooked: distributed items were heavily subsidized, the state practically delivered a survival package for a token price to its employees, i.e. the people.
The primary mechanism in distribution was the Public Distribution System, the PDS.
The PDS was and even now to an extent still remains integral to continuity of ‘basic’ supply. For example in 2010/11 the PDS distribution to non-farming households represented on the average, 72% of the yearly target ration, in 2009/10 it was 65%. In
2012 that figure may have dropped to perhaps 62 or 61%. We will not actually know for sure for the next 4-6 months though.
The Government coordinates and runs the PDS, largely through the military due to logistics, to ensure that food deficit regions and counties have basic food requirements.
It additionally provides fuel and transport for moving foodstuff / harvest from the cooperatives where it is brought to public warehouses, prior to transporting to the food deficit regions. The government used to buy 100% of goods produced by farmers, therefore there was never an incentive based system to encourage higher productivity and diversification. Although it could be argued that when the PDS all but collapsed in the wake of the famine these events encouraged a system of trade and support outside of that offered by the state.
That has been targeted for change. The introduction of the reforms mentioned early, issrisk.com 82 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis in late 2002 and early 2003 whereby farmers markets were introduced are also being revamped now. The government now buys 70% of their product and allows them to sell or trade the remaining 30%.
The PDS used to supply just about all the food, but the farmers' markets have recently been found to play a useful role, mainly in ‘aiding distribution’. The role of the farmers' markets is clearly being recognized as a useful one, however, in distributing food -- by bicycle or donkey cart or whatever -- piecemeal around the country they are not contributing very much more to the food deficit areas than PDS in this respect, where their value is being recognized is actually in localized access.
The cap of 30% usage of farmers harvest is likely to remain in place for the next two years or perhaps slightly longer, this is a contradictory dilemma for the government, as they do see the value, but they also need to be sure that ‘they (Government)’ still can ensure that the short falls are met by them in a manageable fashion as opposed to graduated market conditions replacing ‘their (Government)’ role in this distribution until other fundamental structural reforms can be instigated.
Moreover, with some exceptions, the peddlers are not the embryo of entrepreneurship, the actual experimentation of freedom to choose what to plant within that 30% margin by farmers is where things are starting to get interesting. The farmers' markets have been acknowledged to play a useful role in the distribution of food locally, but they are also playing a more critical role in encouraging this diversification of food grown and sold. By this I mean they have begun to realize that when they all sell cabbages
(think Kimchi!) the only advantage they have over the stall beside them, behind them, in front of them is price. If 10 stalls are selling cabbage and you sell pine nuts for example, pricing is not the issue, demand is.
issrisk.com 83 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
As discussed above the PDS will continue to play a role for now; although this alternative market avenue will become more important in the future as things change.
Certain reform mechanisms are being examined at the moment and fuller evaluation of the merits of the farmers markets and localized access for supply and demand are being conducted. Hence the 2 year period mentioned above.
It is perhaps more the access to food as opposed to the distribution of it that should be re-evaluated on the localized level; along with how this ‘model’ of the farmers market is undergoing a transition. Therefore as the reforms in the agricultural sector continue, the markets will have an increasingly important role in replacing the antiquated PDS system ultimately.
Another very recent development, which is not widely known yet, is changes to the cooperative farming system. Although, state run cooperative farms do not currently have direct access to these farmer markets to sell their staple food commodities, it is definitely one area to watch in the next few years.
At the moment any surplus over and above the grain allocation for local / home consumption must be sold to the State Food Procurement Agency / Food
Administration Department. They also have to sell their non-cereals produce to the
Agency that buys it for distribution through State Shops. Cooperative farms can now circumvent such restrictions by leasing land to farmers to produce their crops. The deal is quite simple; the farmers get the land essentially for free, plant it, harvest it and split the profit with the cooperative farm, 70/30. So this is clearly a low level tactical route of distribution and access and diversification, but inspired by broader reform policies being applied across the country at the moment.
However, I must caution, they have literally only just opened the door on this one in relative terms… the government will most likely still leave that threshold as I said at the 30% margin for the next few years. A level that may be perceived as tokenism by issrisk.com 84 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis the outside world. An additional point is that the farmers markets are actually also providing opportunities for different traders to come along and sell non perishable goods at these market places, a slight move towards encouraging a degree of consumerism. This has the potential to seriously alter the nature of the farmers markets in the next few years.
So taken in the round, this is a gentle and subtle reformist mechanism being quietly tried out across the provinces and counties and again is being evaluated on an ongoing exercise. But, the lack of equipment, coupled with necessary fuel to run that equipment, is quite literally the central problem to the sustainability of crop planting and harvesting. At the moment it is simply labour intensive. Therefore, a significant consideration in respect of attempts at diversification and trials is infrastructure, technology and energy is required.
It is important to note that although North Korea has always produced reasonable quantities of food to feed itself, the fundamental problems are harvesting and distribution. In short, due to the lack of both mechanized equipment and fuel for what they do have, much of the harvest is done by human labour. Forget the accepted wisdom about “decades of Stalinist mismanagement." The problem is essentially fuel. Because of the US embargo, the DPRK is chronically short of fuel, and that means that half of the crops rot in the fields. Harvests have to be brought in within a week or two, and that means either a high level of farm mechanization or a huge population to be mobilized for the harvest. The DPRK has neither. Also, without fuel the processing and packaging factories grind to a halt, as does the transportation system.
issrisk.com 85 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
1.9 REGIONAL RAMIFICATIONS AND EXPLODING THE MISCONCEPTIONS AND THE MYTHS.
It’s all about language and how it is used or employed! Quoting western media sources, AP, Reuters, BBC, CNN, Yahoo, regarding North Korea’s Satellite Launch on the 12th of December who all ran the same line, “North Korea test-fired a missile on December 12th 2012, fanning perceptions of a regional threat posed by the impoverished, isolated state.”
So they test fired a missile? According to American scientists… their words here –
“A rocket is called a launch vehicle when it is used to launch a satellite or other payload into orbit or deep space. A rocket becomes a missile when the payload is a warhead and it is used as a weapon.”
"Ballistic Missile Basics." Federation of American Scientists, 2000
So, again in AP, Reuters, BBC, CNN, Yahoo on 30th January 2013 vague reports that
“South Korea successful launches a “satellite”, seven weeks after North Korea’s launch. One must ask the fundamental question… what is the difference? Both launched satellites, but one is labeled a success and the other a hostile missile launch?
Is there some sort of difference between the rockets used? Hardly, the US,
European countries and many other countries use the same technology.
The fundamental difference is simple; they (friendly sovereign states) do not need to issrisk.com 86 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis seek the approval of other nations to do so. “America” approves of South Korea’s launch, and it vilifies the North’s on the grounds that North might be testing technology for use in long range missile development.
Peace has never been attained on the Korean peninsula simply because America does not want it, they need a bogey man and who better than a weakened paranoid state. This stance towards the DPRK is not so much about North Korea; it is about the US strategy of containment towards China. With peace on the Korean peninsula how then can the US justify its pivot to Asia? Myanmar (Burma) no longer qualifies anymore; it has been sanitized they are all cozy and friendly now!
The biggest regional myth of all perpetuated for the last 60 or so years by the US and her allies is that North Korea is a dangerous rogue state that presents a ‘global threat’ and thus needs to be punished and contained. George W Bush on the 29th of
January 2002 in his State of the Union address grouped North Korea with Iraq and
Iran as that now infamous phrase ‘the axis of evil’. That speech was to be the precursor for the invasion of Iraq and war.
However, the architect of the basis of the speech was former Bush speechwriter David Frum, who originally labeled it as the axis of hatred and then evil.
Frum explained his rationale for creating the phrase axis of evil in his book The Right
Man: The Surprise Presidency of George W. Bush.
Essentially, the story begins in late December 2001 when head speechwriter Michael
Gerson gave Frum the assignment of articulating the case for dislodging the government of Saddam Hussein in Iraq in only a few sentences for the upcoming
State of the Union address, no easy task!
issrisk.com 87 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Frum began by rereading President Franklin D. Roosevelt's "Date which will live in infamy" speech given on December the 8th 1941, after the Japanese surprise attack on Pearl Harbor. While Americans needed no convincing about going to war with
Japan, Roosevelt saw the greater immediate threat to the United States coming from Nazi Germany, and he had to make the case for fighting a two-ocean war.
In his book Frum relates that the more he compared the Axis powers of World War
II to modern "terror states", the more similarities he saw. Iran and Iraq, (Al Qaeda and Hezbollah), despite quarreling among themselves, "all resented the power of the
West and Israel, and they all despised the humane values of democracy." There,
Frum saw the connection: "Together, the terror states and the terror organizations formed an axis of hatred against the United States."
Hence the phrase ‘The Axis of Evil’ was created. However, it wasn’t really an Axis in the traditional sense understood by audiences relating it to the 2nd World War, i.e.
Germany, Italy and Japan, something was missing, we only had two countries essentially, Iraq and Iran - that would never do, it would confuse a fickle audience.
George W and his advisors had the answer; add North Korea, and then we have three rogue states threatening world peace. And they did.
There is also the slight oversight that North Korea is perhaps the most homogenous nation in the world and they share nothing either religiously, politically, ethnically, or for that matter - anything at all - with Al Qaeda or Hezbollah, nonetheless a tenuous linkage had to be established, (the policy advisors conveniently overlooked this point when integrating and connecting North Korea with radicals and fundamentalist Islam!)
The point of explaining this is to draw attention to the fact that even though there was not even a perceivable correlation between the DPRK and the ‘War on Terror” it was made nonetheless. Why?
issrisk.com 88 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
The linkage was essentially made by speech writers to aid the president to persuade the civilized world to engage in an unjustified war. However, the subtle point overlooked by many is that it allowed for the continued vilification of the North, in the background, totally unrelated to the ‘war on terror’ wars that were being waged against nation states with imaginary weapons of mass destruction.
Thus the process of vilification of the DPRK could be maintained and picked up again at a suitable time in the future.
But how can such huge myths be instigated and perpetuated on such a global scale?
Quite simply, complicity and duplicity of the western media, the world is constantly
‘informed' of what a menace the leadership of the DPRK is, how crazy its leader is
(consecutive leaders at that – seems to be a genetic disposition towards craziness in the Kim family if the media is to be believed) by Pentagon fed US media. Who at the same time are manipulated to justify US bombings, invasions and occupations of other nations with seemingly unquestionable belief by the media in what they are being told and fed.
The media ‘cartels’ no longer seem to question what they are fed, they report, they sensationalize. Take the Iraq invasion, the utter lack of moral fortitude from the media during the choreographed and stage managed build up to it gave the US administration carte blanche to influence world opinion. Even after the WMD claims were proved to be a totally false premise for the Iraq invasion the media circled the wagons and claimed they had been misinformed. What ever happened to the dogged investigative journalism of old? Globalization, conglomerates and the creation of media cartels, journalists it would appear are now as much company men as Pentagon staffers are, the dogged investigative journalist of old is an endangered species.
issrisk.com 89 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
2.0 WHERE IS THE DPRK NOW?
It is appropriate at this juncture to examine the strategic orientation and thinking of the leadership now and how they have come to this critical juncture. There has been a realisation, or dawning, that the long term crippling effects of sanctions and continued isolationism would eventually undermine their very existence and a recognition things have to change. They are developing a more geo strategic and regionally strategic perspective on their existence. This is not something that has happened overnight, nor for that matter in the past 6 months. This realisation has been building over the last decade.
They have become more cognizant of the fact that global power balances and dynamics have been and are shifting. They realise that regional power balances have been repositioning. China has become an increasing important global and regional power, but Mongolia for example is also becoming an integral regional player.
What is happening currently is a restructuring of relationships regionally in which the
North is aware that they have a role to play, but they have some serious house keeping to attend to first.
On the 31st of March 2013, the Workers' Party of Korea (WPK) Central Committee formally adopted a new strategic policy line of parallel economic construction and nuclear weapons development. What the leadership wishes to achieve from this is essentially several objectives. A repositioning at the negotiating table in terms of equality, a major bargaining chip to trade in as and when assurances are given on issrisk.com 90 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis sovereign security and an internal power realignment to allow for the much needed economic boost the country requires to grow and develop.
China has a significant interest, and potentially a very significant role to play in not just the continued stability of North Korea and developments in their economic and security status but also an improvement in North-South relations. This is especially true when it comes to a reduction in South Korea’s dependency on US nuclear and military support. The significance of this particular assertion cannot be overstated.
The Chinese see an opportunity with the situation between South Korea and North
Korea to drive a wedge between the US-South Korea’s relations and as a counter balance to an increasingly hawkish right wing Japan. North Korea has played a central role in the dangerous dynamics of the North East Asia region, very often at their own expense whilst stronger nations vie for dominance.
The juncture the DPRK finds itself at now could considerably change the status quo and rebalance the power dynamics in the region. The ensuing stability on the peninsula would serve to bolster China and South Korea and diminish US and
Japanese influence yet further, thus changing the regional situation significantly.
Additionally it would provide the DPRK with the only specific objective it has sought and has been requesting and positioning itself for since the beginning of the last decade in particular, but in fact for the last 60 years - a peace accord or non-aggression guarantee and the opportunity for economic reforms and sustained development and growth. If the DPRK and China have actually recognised that the US, for its own strategic and tactical reasons is never going to provide this, then China is really the only logical counterbalance that can provide the guarantees issrisk.com 91 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis that the North seeks. This reflects the fundamentally different geopolitical and strategic views that have essentially created and governed the stalemate on the
Korean peninsula.
In combination with Russia perhaps, (and USA theoretically) they could provide a framework to bring resolution to the current stalemate. A new Asian dynamic would result - leaving the whole region, with the exception of Japan, with a lessening dependency on the US. Such a transition would create the opportunities for a range of initiatives for significant economic development. These opportunities would include the trans-peninsula pipeline and transportation package, which would provide all the regional players with a stimulus for significant economic growth, and a move to sustained peace on the peninsula.
What if North Korea and South Korea were to bi-laterally negotiate a permanent peace treaty? What then for the US strategy of antagonism and hostility with the
DPRK? Such a move would quite literally remove the illusionary threat and bogey man of North East Asia. If a peace accord were to be finally signed between the two nations, with security and sovereign assurances and guarantees provided by China and perhaps Russia, any moves by the US to try and scupper such a move would show them up to be seen as the protagonists.
issrisk.com 92 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
2.1 CONCLUSION: WHERE IS THE DPRK HEADED IN 3 – 5 YEARS?
This is a question that obviously vexes many observers of the DPRK. To set the stage I will “quote”, not copy, a statement (publicly available on the internet) made by a leading Anglo US Risk Management Company regarding the DPRK in 2013:
North Korea: “Sometimes...you just can’t know what's happening. Looking at North Korea this year, that's really the case. We've had a fairly sudden leadership transition in the world's most totalitarian state, under massive economic pressure, with an untested 28-year-old now running the country. So far, very surprisingly, it's gone well. Indeed, it's probably gone better than anyone would have dared presumed--in his first year of power, Kim Jong-un has presided over a regime that's a bit more transparent, a bit more balanced, and barring a few early purges, a bit more stable.”
“How has the unknown and untested Kim managed to pull that off? Is he sincere? Can he continue? We honestly don't know. And neither does anybody else. It's almost impossible to assess whether North Korea is becoming more stable and, if it is, whether that now means the South Koreans, in particular, can start resting a bit more easily. Everything about the North Korean system tells you it's a perilous bet as a country--but what causes trouble and when? We'd like to say it's not worth losing sleep over. That's not quite true. But at the same time, working harder to assess what exactly is going bump in the night doesn't feel very purposeful. Sorry.”
Therefore, speaking as the ‘anybody else’, here goes….
The regional context for DPRK:
The DPRK’s evolutionary trajectory will be defined not just by themselves but also by the emergent Asian superpower - China. China’s economy will continue to grow, albeit at a more moderate rate, but grow nonetheless. It will methodically carry out issrisk.com 93 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis its three pronged national economic development objectives, targeting the human resource base of the Mekong Delta region, the physical resource base of central and western regions and the re-vitalization of the Northeast industrial base, namely
Heilongjiang, Jilin and Liaoning provinces aka Manchuria.
In this respect, the DPRK is the most strategic piece of real estate in North Asia and vital to Chinese leaders attempt to rejuvenate the economy of its Northeast territories.
This area, known as Dongbei, suffered badly during China’s economic reforms in the
1980’s and 90’s, with millions of jobs being lost. Since roughly 2003, Chinese policymakers have placed the rejuvenation of the old northeast industrial base into their agenda. However, economic growth in northeast China continued to remain sluggish over the last decade due to various reasons.
Over the last year, boosting this region’s development has taken on greater urgency among senior officials, as it has noticeably fallen behind other areas of the country economically, such as the Yangtze River Delta and Pearl River Delta regions’, where industries such as finance and trade have developed significantly. China’s State
Council, or cabinet, approved a proposal to turn Jilin’s Tumen River area into an economic development zone last year, while the country’s National Development and
Reform Commission (NDRC), China’s economic planning agency, is in the process of introducing a 10-year plan to improve the regions economy and have it serve as a gateway into northeast Asia. North Korea will play a critical role in this development.
Via the Rason and Rajin ports, the DPRK can serve as a “Regional Gateway” for
China’s Northeast territories to export goods to markets in Japan, South Korea and
North America, as well as Europe via the trans-polar region in the future. Besides providing easier access to the Sea of Japan, which also helps China overcome its strategic bottleneck in the greater Pacific, it will also save China’s Northeast provinces huge transportation costs. Currently, these regions mostly use railways to transport issrisk.com 94 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis goods to ports in China’s eastern and southern regions. Moreover, the untapped resource base for hard rock minerals, coal, and rare earth elements can be transported to China’s resource starved coastal areas via northeast rail and shipping channels.
Investment into North Korea ports by the Chinese has been growing. For example, in
September 2012, a Chinese company in Jilin province established a $7.83 million joint venture with a North Korean company in Pyongyang to operate the No.3 and 4 wharves of the Chongjin port, which is close to the Rajin-Sonbong special economic zone, for 30 years. This is the second port leasing agreement signed between China and North Korea, the first being inked in March 2010 to use piers at Rajin port for 10 years. This also happened to be the first time China acquired a direct trade outlet to the Sea of Japan.
Further, on September 22, 2012, the China Overseas Investment Federation and
North Korea’s Investment Office in Beijing signed an agreement to launch the “Special
Fund for Investment in North Korea”. The fund, worth roughly $492 million, will focus on the mining industry as well as real estate development and port operation in North
Korea, underscoring the importance North Korea plays to China’s strategic and economic calculus going forward. That said, given North Korea’s hesitation to be completely reliant on China for investment, Mongolia, Russia and South Korea are also poised to benefit from the country’s economic development. For Mongolia, the development of the Rajin and other strategically located ports could secure sea access to the Pacific, thus helping Mongolia reduce its dependence on Chinese or
Russian transit ports. (Note: at the time of writing a Mongolian government delegation is in
North Korea on a Government to Government mission and is negotiating access to Rajin).
Russia, meanwhile, has signaled its willingness to connect Rason’s oil refinery to its
Siberian oil and gas fields, and is providing the zone with electricity through a joint issrisk.com 95 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis development scheme. They have also just announced restoration of rail links with
Rason, and may be willing to write off a significant portion of debt owed by North
Korea as part of the deal. And for South Korea, it would slash significant transit times, by up to 50%, and save 30 – 40% in terms of costs of transportation to Eurasia and
Europe.
Likewise China would also significantly reduce shipping time and costs by using Rajin as opposed to Dalian port. Chinese trade with North America is increasing and requires more direct access to the Pacific Ocean, to bypass the ports on the Yellow
Sea. It would also enhance trade between China, South Korea, Japan, and even
Europe (Rajin port can be considered as a key nodal point at the end of the
Trans-Siberian Railway), giving this area a higher strategic dimension for the entire region than is currently accorded. The satellite image below explains this succinctly.
issrisk.com 96 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
The DPRK will have a significant role to play and benefit hugely from revamping its own aging infrastructure with plans for railway link, airports, power stations and supply upgrades and ports upgrades and accessing its natural resources and improving access to the hinterland. Therefore on a regional level North Korea sits in a vital strategic position that would greatly assist all of its neighbor’s growth strategies.
China will build out her shipping fleets; establish trade routes and control vital transportation choke points from the Panama Canal to Piraeus and from Iceland to
Gwadar. The US China strategy of ‘economic engagement coupled with military containment’ will burden the US in many ways. While the US is engaged in the sinkholes of the Middle East and Africa attempting to maintain control of strategic resource bases, China will be solidifying its dominant hold and influence as a pan continental power along the Silk Road from the Central Asian ‘Stans’ through to
Europe, connecting pipeline, road and rail networks. One wonders how well that US containment strategy is going.
The direct context for the DPRK:
So what does this actually mean for the DPRK? It means the DPRK will simply not be permitted to implode. The newest fashionable meme - “failed state” has no application to the DPRK and will not stick. There will be no repetition of the standard western script for staged regime change – political and economic subversion of the target state, followed by fomenting of armed insurrection, followed by armed
‘humanitarian intervention’.
There is more than a tokenistic shift in mindset in the DPRK away from the old almost allergic aversion to foreign capitalists towards a mentality of engagement. The
DPRK will continue a staged evolution into an authoritarian mixed command / market economy on the model of other now developed Asian economies such as China,
Singapore and ROK and developing economies such as Vietnam. The reforms are issrisk.com 97 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis about not just the survival of the country…they are about its transition.
Five years ago when one spoke of Burma, or Myanmar, the perception was starkly different then to what it is today. What changed for Myanmar?
The removal of sanctions, a graduated international acceptance that there was a will and desire for reform, tangible actions regarding reforms and opening up and the subsequent normalization of diplomatic relations. Ironically, the very same nations who dictated the international isolation of Myanmar are the very same nations’ racing to share in the country’s new found economic growth.
There is an interesting comparison to be drawn between Mongolia, Myanmar and the
DPRK. The Mongolia experience stretches back 20 years now since they threw off the shackles of communism and embraced reform. It became the darling of the west, but it became of much more interest when the extent of the natural resources became apparent over the next 10 years. Then there was the rush, the boom of investment opportunities and unparalleled growth. Then the Mongolians decided that they were not getting such a fair deal and started to protect their national resources and interests over the last few years. That coincided with the opening up of Myanmar. Many of the same frontier, pioneer orientated companies and individuals that were familiar in
Ulaan Bataar during the early to late 2000s are the same companies and individuals who are now familiar in Myanmar.
One can but wonder if the Mongolian experience of the pioneers will be repeated at some point when the government in Myanmar and the indigenous business community have gained sufficient exposure and knowledge from their flirtation with these pioneers to start to protect their interests and national assets just as Mongolia is doing. Then one can imagine, given the dwindling number of ‘frontier markets’ to where those pioneers will look next. However, by then North Korea will be drawing issrisk.com 98 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis on the experiences of China, Mongolia, Myanmar and Vietnam to implement their reforms, each will have their own experiences to share with the North to allow them to implement the reforms that suits the North best, a pick and choose approach to a the creation of a managed, mixed market economy.
So where is the DPRK heading in the next few years?
In respect of North Korea over the next 3-5 years, contrary to the views that you sometimes simply don’t know what will happen, there exists a number of opportunities and options:
" The ‘potential for the removal of sanctions, achievable if a peace accord
between the parties to the armistice can be reached, or is allowed to be
reached.
" There is the very real possibility of the total denuclearization of the entire
peninsula as a consequence of peace finally being allowed to happen.
" The increasing agricultural reforms will assist in bringing sustainability to food
production and lessen the dependency on food aid and achieve food security for
the country in tandem with other reforms.
" A gradual international acceptance that there is a demonstrable will and desire
for reform within the North Korean government. This is being demonstrated now
with the internal changes;
! Demilitarization of the government. (Moving away from The Military First
doctrine of Sogun)
! Strengthening civilian institutions
! Political reforms issrisk.com 99 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
! Economic reforms
! Agricultural reforms
! Labour reforms
! Sectors opening to attract FDI
! Demonstrable moves and gestures towards denuclearization
These are all tangible and significant actions regarding reforms and gradual opening up from the North Korean government over the next few years’ and the subsequent
‘normalization of diplomatic relations. There are very real and significant political and economic changes in the country which now make investment in the economy very attractive. These are all possibilities that up to now have been either disregarded or ignored by the world at large largely due to a misunderstanding and misrepresentation of the country. The North Koreans have been asking, for many years, for a ‘peace treaty’.
The DPRK wants to grow and develop, to reform and attract Foreign Direct
Investment; however, until the issues and obstacles to progress are fully removed they shall have to labour and persevere alone and wait for the outside world to look back in hindsight and ask how we missed that ‘Black Swan’ moment in North Korea.
The usual narrative trumpeted by the legion of ‘experts’ is based on an ignorant view of the country stemming from a distinct lack of a comprehensive understanding of what is actually taking place within the country. The recently published RAND report takes this jaundiced view. It plays to the ignorance that exists out there towards the country and sends the message many expect to hear, and the message some wish for people to hear. It talks about the possible collapse of the country and the disastrous situation that would emanate from such an implosion, presenting strategies to mitigate such scenarios.
What it does not say though is that the country has survived worse situations over the issrisk.com 100 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis past few decades, through out the 1990’s when to put it mildly things were worse than grim. The country pulled through against the odds then and has been on a path to improvement ever since. The fact that the scenarios presented by the RAND report would have been more likely 10, 15 or 20 years ago and not today, warrants questioning as to why such sentiments are being peddled now.
Perhaps the fact that the Government of North Korea is using the language of engagement is discerning to certain players; perhaps a realization that the county is on a path to reform has spurred concern. Perhaps sentiments such as these, from
Pak Kil Yon of the Democratic People’s Republic of Korea (DPRK), the Vice-Minister of Foreign Affairs, expressed just this past week at the United Nations 68th General
Assembly high-level debate, are what should be guiding people’s perspectives on the current and future intentions of the DPRK:
Mr. Pak stressed that DPRK remains committed to putting an end to the tensions through dialogue and negotiations. He emphasized the repeated vicious cycle of mounting tension on the peninsula is rooted in the “hostile policy of the United States [towards] the DPRK.” That policy must end, and the US should, among others, respect his country’s sovereignty, lift sanctions, and immediately dismantle the outdated “UN Command.”
“Reunifying the country is a long-cherished desire and the most pressing task of the Korean nations,” he said, adding that Pyongyang “will work, hand in hand, with anyone who truly wants reunification, reconciliation and prosperity.”
In his statement, Mr. Pak also highlighted nuclear disarmament, saying that it is the “unanimous demand” of the international society, “nuclear disarmament negotiations should commence without further delay to work on universal instruments legally codifying the negative security assurances and prohibition of use of nuclear weapons.
His statement can be read at: http://www.un.org/apps/news/printnews.asp?nid=46158 issrisk.com 101 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
Addendum:
The ousting and subsequent execution of Jiang Song Taek has raised a multitude of questions about the situation in the DPRK. There is a plethora of theories doing the rounds as to why this happened, who was behind it, why now, what the ramifications are… were hardliners behind it? Was the Military behind it? Where does this leave the country now? My position is that it was pre-ordained some time ago and Jiang had to be given enough rope so the regime could kick the chair out from under him when ‘they were ready’.
Overall though it is still a difficult subject to answer, as there isn’t necessarily a straight line to follow. Jiang Song Taek had been dabbling behind the scenes on a wide range of fronts (something akin to a protection racket), sticking his nose in a number of the conglomerates. Not all have welcomed his propositions. Jiang led a couple of delegations to China and if he was true to form would have been playing his charms in China too. About two years ago through the Korea Taepung Group he brought to Pyongyang an underlying message that the Chinese Communist party was on board, announcing that he was going to bring huge investments into the country. That died as suddenly as it started.
Jiang had a chequered past, his predisposition to corruption was an open secret within the halls of power in PY. It is a very loud and clear message on a number of fronts: Kim Jong Un is in charge and is not frightened to make the difficult decisions and corruption will not be tolerated at any level. So perhaps one should use peripheral vision, cast a wider net and watch how the various conglomerates now perform now that the shackles have been taken off.
What were the motivations for Jiang’s denouement? Firstly, on the motivations behind his removal, there are a multiplicity of motivations, some created directly by his actions and some purely out of timing, some others are related issrisk.com 102 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis to shoring up Kim Jong Un’s power base and importantly strengthening the hand of the 2nd and 3rd generation at the expense of the 1st generation. I referred to this generational shift some time around November last year. Importantly, it is also about removing obstacles to the broader reform program that Jiang was in actual fact hindering.
This was essentially also part of the process of consolidating the succession transition. Jiang has quite literally served his purpose as the mentor guiding Kim Jong Un’s transition, ensuring that his father’s wishes were adhered to. His denouement was not a random or spontaneous event, or a fit of temper, it would have been choreographed... long in advance. There is speculation that the hand written letter delivered to Xi Jin Ping from Kim Jong Un earlier this year included a reference to Jiang’s impending demise. It is no coincidence that Choe Ryong-hae delivered that letter, a man now so well ensconced and sanctioned by Kim Jong Un that he is quite literally elevated to the standing of the 2nd most important figure in the regime after Kim Yong Nam.
However, the underlying message from Jiang’s demise is to demonstrate that the DPRK is very serious about addressing corruption with a view to attracting direct foreign investment. They killed a very large chicken to scare all the monkeys this time around.
This series of events that unfolded since the beginning of December now place the country on a footing to address their reforms in a more coherent and controlled manner. Jiang’s ouster has presented an opportunity to create equilibrium between the military, the Party and the Civilian government towards the reform program, Jiang had essentially been the divisive force or bottleneck hampering such a balance being attained.
" Watch for Kim Jong Un’s first state visit taking place to China sometime in the next 4 months
" I would expect another high level delegation from DPRK to visit China to enable such a visit to be arranged and discuss further Chinese assistance and guidance. issrisk.com 103 Intelligent Security Solutions Limited Frontier & Emerging Markets Analysis
" State conglomerates will see a ‘purge’ as such (not particularly keen on that terminology) or ‘house cleaning’ of anyone who was strongly allied with Jiang.
" Anticipate more announcements on the creation of the new SEDZ’s and other structural reforms in the coming 6 months.
" Further engagements with Mongolia and other regional North East Asia powers on economic cooperation.
What of the relationship with China and the DPRK? If anything, China is quite likely quietly relieved by his absence. Regarding the relationship between China and the DPRK, Jiang’s removal should be viewed as a positive step to strengthening and improving it.
The SEZ’s are planned to play a major role in increasing FDI into the country. The DPRK government announced the setting up of 4 new zones in September and then in November plans for a further 14 zones. To date, the existing zones have not really been a great success. Rason for example houses approximately 23 foreign enterprises. However, trade with the existing zones has been increasing. Take Hong Kong for example, in 2012 HK occupied the position of 13th largest trading partner with the DPRK, in September 2013 it was revealed HK has jumped to 2nd largest trading partner with the country.
This is a latent benefit of Beijing’s peripheral engagement strategy with DPRK to encourage greater economic cooperation. This alone should be indicative that China is not stepping back from the DPRK, nor for that matter are relations as strained as observers, analysts and media are portraying or alluding to. On the contrary, it should be taken as an indicator of Beijing’s willingness to engage with DPRK and bring stability and economic growth and development to the country.
issrisk.com 104