A department store, a gas station and even a brewery – these are just a few of the many projects North Korea has been pitching to foreign investors recently.
Apparently keen to shed its image as a socialist relic, the cash-strapped country has in recent months publicly wooed overseas investors with a flurry of individual investment opportunities across a range of industries. At the same time, it has greatly expanded its number of Special Economic Zones, where foreigners can benefit from reduced tax rates and 50-year land leases, from just six in 2013 to more than two-dozen this year.
A Korean Central News Agency report in February summed up the steady PR campaign to portray North Korea as open for business, with a government official quoted as saying the state was going all-out to “create a legal environment favorable for the rights and interests of foreign investors.”
Reports of unprecedented private commerce within North Korea and flourishing cross-border trade with China appear to have convinced at least some business watchers, who see a fledging market brimming with possibility.
“The country is really opening up,” Paul Tjia, a Dutch outsourcing specialist who has facilitated business between foreigners and North Koreans, told NK News. “They do want more investment and trade.”
Tjia believes the time is ripe with unexplored opportunities for European businesses. He said businesspeople in every major European country are likely “testing the water” to conduct fresh business in or with North Korea, although he was unable to point to specific names.
“From a North Korean point of view, I think they are willing to provide the outside world with more information,” Tjia said.
One way the country has sought to do just that is through annual trade fairs, such as the 11th Pyongyang Autumn International Trade Fair, held in late September. Paul Forien, a international relations student who attended the fair, said the event mostly showcased Chinese and North Korean firms doing business on the border, as well as a small number of Asian and Western firms, the latter of which included cosmetics brand Nivea and beauty products outfit Cve International GmbH.
“North Korean companies were selling mostly clothes, traditional alcohol and makeup,” Forien said. “Everything for a cheap price. A few of them were selling computers and tabs (that read) ‘made in North Korea’ as well.”
‘… if you are a successful businessperson, you don’t want to tell everyone you are successful because everyone else is going to try and cut into your business’
Yet, try to gauge overall foreign investment levels or even the extent of interest from potential investors, and the picture becomes murky. North Korea does not produce official economic figures, and firms involved with the country tend to be discrete about their dealings.
“A lot of people who are successful at business do keep a low profile, because … if you are a successful businessperson, you don’t want to tell everyone you are successful because everyone else is going to try and cut into your business in a sense,” said Michael Spavor, a North Korea consultant who has been trying to match foreign investors with projects in the Wonsan-Kumgang Development Zone, including the brewery construction and department store remodeling.
Spavor insisted that he has facilitated successful foreign business ventures inside the country in the past, but remained guarded on the details.
At present, the envisaged brewery is a particularly promising project, he said. If built, it would produce 50,000kl of beer a year to meet demand currently not satisfied by the Taedonggang Brewing Company facility in Pyongyang.
“The Koreans are respected as experts at fermentation and producing alcohol by the Chinese and even the South Koreans,” Spavor said, adding that he has received interest in the project from German and Belgian partners.
But with North Korea’s reputation as a place hostile to both foreign influences and private enterprise still looming large, investors don’t seem to be rushing to capitalize on Pyongyang’s overtures in large numbers, either.
Adam Cathcart, editor-in-chief of Sino-NK, said that many of the SEZs remain close to empty, despite promotion by Pyongyang.
“Some of them aren’t being invested in,” Cathcart said. “A lot of them are quite notional – I mean they exist purely on paper.”
Cathcart said that other zones have fallen victim to political turbulence, pointing to the example of Hwanggumpyeong Island, located near the Chinese border city Dandong, where development of an FEZ was abandoned after the execution of Jang Song Thaek, who had managed the project.
Pyongyang’s decision to then name new zones, including in the city Sinuiju, located right across from Dandong, even as older ones languished, added to the policy confusion, he added.
“It creates a kind of mystifying effect for partners, while keeping the slow flame burning in the media and elsewhere that, ‘Oh, reform is on the horizon,” Cathcart said. “If you want to invest in North Korea, there’s a special economic zone or economic development zone which might be for you.’”
If they are willing to put their money into the country, foreign investors must then contend with the severe communication and transportation limitations that come with working in a totalitarian environment.
“It’s about having the ability as a foreign business person to move around with your cellphone, for example,” said Cathcart of the obstacles, “to have phone contact for your North Korean counterparts and to be able to reach them with more regularity and more ease.”
Koryolink, the country’s mobile phone network, only serves about 10 percent of the population and does not allow contact between local and foreign users. North Korean immigration, meanwhile, is prone to drastic exit or entry restrictions with little warning – last year, it closed its borders to all non-essential travel for four months over the global Ebola scare.
‘Xiyang Group’s investment in North Korea was a nightmare, and we were taking our lives in our hands when we entered the tiger’s lair’
The country also has more than a few investment horror stories to its name. In 2012, Xiyang Group, a Chinese mining firm, accused North Korea, its partner in a joint venture, of breaching contract, corruption and intimidation, among other unprofessional behavior.
In an extraordinary broadside, the firm told Chinese media: “Xiyang Group’s investment in North Korea was a nightmare, and we were taking our lives in our hands when we entered the tiger’s lair.”
More recently, Orascom Telecom Media and Technology, the Egyptian telecom that runs Koryolink with North Korea, hasn’t been permitted to repatriate its profits because of a disagreement related to the official exchange rate, which bears little relation to market value.
“The DPRK has a lot of work (to do) to create a track record that potential investors can look at and think, ‘OK, I see examples that I can emulate,’ said Andray Abrahamian, director of research at Choson Exchange, a nonprofit that provides business training to North Koreans. “In a way, this would be easier for them to do than resolving the geopolitical issues that are at the root of the sanctions regimes.”
Abrahamian said that FEZs and new foreign investment related-laws, while welcome, have fallen short of assuring investors that North Korea is a safe bet.
“What they really need is to start publicizing credible and data-driven success stories – indeed, working to increase the number of FDI success stories – to create a solid track record. This is still lacking.”
Image: Eric Lafforgue
Join the influential community of members who rely on NK News original news and in-depth reporting.
Subscribe to read the remaining 1244 words of this article.