“A UNIQUE and sweet taste,” says a poster describing a new brand of soju, a local firewater, made by Naegohyang. The North Korean company started out making cigarettes (reportedly puffed on by Kim Jong Un, the country’s dictator). It has branched out into a thicket of unrelated items, including playing cards, sanitary towels, sports kit and electronics. It advertises them in the stadium of the women’s football team it sponsors.
Naegohyang, which means “My Homeland”, is one of what appears to be a growing number of large and diversified businesses in North Korea. In Kwangbok Area Shopping Centre in Pyongyang, the capital, Naegohyang’s “7.27” cigarettes compete with “Hanggong” (meaning “airline”) brand, produced by Air Koryo, the national carrier. The latter, too, appears to be expanding into several industries, from making potted pheasant and canned mackerel to operating taxis and petrol stations.
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Such conglomerates are often compared to the chaebol of South Korea, but are best understood as “a private-public partnership” says Chris Green of International Crisis Group, a think-tank. Under North Korean law the government is the sole economic operator and private business is banned. Although these companies are nominally owned by the state, they are run mainly privately and rely, at least in part, on private funding.
After a famine caused the state rationing system to collapse in the 1990s, Kim Jong Il, Mr Kim’s father and predecessor, turned a blind eye to small markets called jangmadang, where ordinary North Koreans bought and sold goods. Ministries were later given rights to trade in certain goods, creating opportunities for entrepreneurs down the supply chain. The government requires some state-owned companies and agricultural workers to provide fixed quotas of goods, but allows them to use the rest of their output as they see fit.
Not all the conglomerates grew out of ministries: some started as private companies but became big enough to require state patronage. North Korea’s monied elite provide them with cash and cream off most of the profits. The overseeing ministry provides protection in return for a cut—a tax, in effect. It is usually a fixed sum based on expected profits.
Sanctions, ramped up in recent years, have further encouraged the development of conglomerates, says Andray Abrahamian of the Honolulu branch of the Center for Strategic and International Studies, a think-tank. He points to the example of Myanmar. Sanctions that blocked access to foreign goods and investment led, he argues, to the domination of the economy by the well-connected. In North Korea, for example, it is often relatives of powerful ministers and bureaucrats who own trading companies. Jang Song Thaek, Mr Kim’s uncle, who was executed in 2013 for treason, controlled fisheries, coal mines and exports of other minerals.
Unlike his father, Kim Jong Un has not tried to roll back the development of a private economy or large, sprawling companies. Indeed, since 2013 he has stressed the parallel development of nuclear weapons and the economy. He has talked about making more domestically and giving choice to local “consumers”. In 2014 the law was changed to allow managers of state-owned firms to trade and create joint ventures with foreigners, and to accept financing from private investors at home.
The growth of conglomerates initially increased competition: in addition to Air Koryo, for example, a riding club, a ski resort and a phone company also set up taxi services. But the big firms are starting to gobble up or squeeze out the small businesses through which poorer North Koreans make a living. Seafood companies connected to the army are putting fishing co-operatives out of business.
Analysts reckon the big companies are a prop to the regime, too. They not only pay taxes, but can manufacture things that are hard for it to obtain because of international sanctions. The wealthy are presumably happy to have increased opportunities, even if they can be withdrawn at the regime’s whim (one of the reasons for Jang’s execution is said to have been his economic power). The Bank of Korea, in Seoul, reckons the GDP of the North increased by 3.9% in 2016.
But in the long run, a more “aspirational society” and a healthy middle class may lead to the country opening up, says Simon Cockerell, who runs Koryo Tours, a travel agency based in Beijing, and has visited North Korea 168 times. These companies have been able to grow thanks in part to a growing consumer class, albeit mainly confined to Pyongyang. Sokeel Park of Liberty In North Korea, a Seoul-based organisation, reckons the development of new centres of power, which follow economic incentives, will ultimately increase pressure on the regime.