North Korea: Investing With the Enemy
Believe it or not, there are those who believe the world's most isolated market will yet emerge.
North Korea, arguably the most isolated nation on earth, is making a surprising attempt at attracting foreign investment.
The Korean Central News Agency, the DPRK's official state news organization, announced yesterday:
"Kim Jong Il, general secretary of the Workers′ Party of Korea and chairman of the National Defence Commission of the DPRK, Sunday received Naguib Sawiris, chairman and CEO of the Orascom Telecom Holding of Egypt, on a visit to the DPRK.
"Kim Jong Il received a gift from him. He thanked him for the gift and warmly welcomed his DPRK visit taking place at a time when Orascom′s investment is making successful progress in different fields of the DPRK, including telecommunications. He had a cordial talk with him. After receiving him, Kim Jong Il hosted a dinner for him."
Jang Song-thaek, Kim's brother-in-law and vice chairman of the National Defense Commission Lim, was also present at the meeting. This is very unusual, according to Eul-chool, a professor at Kyungnam University's Institute for Far East Studies in Seoul, and suggests North Korea is "putting a great deal of energy into foreign capital attraction."
With US-North Korea relations at a modern low (not that they were ever at much of a high), what does it take to actually invest in the DPRK and who is permitted to do it?
As it happens, doing business with North Korean companies is legal under United Nations sanctions, unless they are involved with the arms trade.
"We do get occasional calls about investing in North Korea, but not very often," a spokesperson at the US Treasury's Office of Foreign Assets Control tells Minyanville. "North Korea's not quite the same as Cuba -- there are a number of individual entities in North Korea that US citizens are forbidden from doing business with."
A call to the DPRK mission to the UN was answered with a quiet, suspicious-sounding "Hello?" after which the phone was handed to an apparently more senior level bureaucrat who had trouble making heads or tails of the question, "Can you tell me about outside investment policy in the DPRK?" The man on the other end of the line requested a faxed set of questions, addressed to "Ambassador," after which some sort of response would eventually be offered. Or not.
Finally, a call was placed to the European Business Association, which is "an independent organization whose goal is to promote and develop business and trade relations between Europe and North Korea."
After some difficulty establishing a connection, the EBA's liaison in Pyongyang, a German woman named Barbara Unterbeck who works out of the Bulgarian diplomatic compound, picked up the phone.
"Hello, my name is Justin Ro-"
"Who are you? Why are you calling?" she said.
"Um, I was hoping to-"
"You know, it's late here. Check your timetables and try again, yes? Thank you." Then she hung up -- as did the government minders who were most assuredly eavesdropping on the call.
Multiple follow-up attempts to reach Ms Unterbeck were unsuccessful.
Rewind to January 2008. Orascom Telecom Holding of Egypt and Korea Posts and Telecomm Corp. established a 75%/25% joint venture to build North Korea's first 3G mobile network, called Koryolink.
So, how -- and why -- did Orascom, which trades on the Cairo & Alexandria Stock Exchange under the symbol ORTE, and on the London Stock Exchange under the symbol OTL, go into business somewhere companies like Verizon (VZ), Sprint (S) and AT&T (T) would never dare tread?
Sawiris explained, in so many words, that Orascom was intrigued by what could be considered the most emerging of emerging markets.
"We are always examining the countries that don't have service and always pushing to get in," Sawiris said. "This was one that didn't have coverage and we met the embassy here, got in touch with authorities and here we are."
That's the "how." The "why?"
"This is not just about providing 3G mobile services; we are making history in a country that is developing and opening up in a remarkable way," he said.
However, "opening up" can be interpreted in many different ways. Though the network was constructed by Orascom, Sawiris accepted that all communications would nevertheless be strictly controlled and monitored by authorities.
"That's the right of the government," Sawiris said.
The decidedly non-capitalist regime even produced a television commercial to promote the service:
But, whether it was an actual attempt to spur sales of handsets that cost up to 25% of the average per-capita income (airtime is, of course, extra), or rather, an easily seen-through propaganda piece to convince the citizenry that the DPRK was in step with the rest of the world, is up for debate.
"In an attempt to make a great leap forward, the government… seized upon the promotion of information technology as a strategic priority," wrote Marcus Noland of the Peterson Institute for International Economics.
Noland identified four markets for Koryolink [pdf], none of which include the populace at large:
"Presumably, there is considerable repressed demand for telecommunications services in North Korea; one can identify at least four distinct potential markets.
"First, there is the state itself. North Korea is extraordinarily militarized, and given the Korean Peoples Army's privileged position in the economy, the KPA is probably the single most important user of telecom equipment and services. Following the military, the next largest current users are most likely government and Korean Workers Party organs.
"A second high-margin constituency is foreigners, though the resident foreign community is quite small, probably numbering in the hundreds. Under an aid agreement reached in the spring of 2008, the United Nations World Food Program and officially sanctioned NGOs will be allowed to station nearly 70 expatriates in country, and the rest of the UN system may have a similar number in total. There are also foreign embassies and NGOs, mostly European, with a semi-permanent presence, and a few foreign businessmen or investors in residence. North Korea has seen a steady increase in international trade in the last several years, resulting in the increase of the number of visiting foreign traders and businessmen (mostly Chinese). Their counterparts are in emerging trading companies and new businesses.
"North-South economic cooperation projects, most prominently KIC, would be another source of demand. Beyond Kaesong, under the right conditions one could imagine light manufacturing and mining operations expanding. Perhaps most interestingly, there are the beginnings of labor-intensive/information-intensive businesses in North Korea, notably software development, information processing, and commercial graphics."
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.