6/12/2018
HONG KONG — North Korea is one of the world’s most isolated countries. It is ruled by an unpredictable dictator with his finger on the nuclear button. So, who wants to invest there?
Well, basically nobody.
But leading up to President Trump’s meeting in Singapore with Kim Jong-un, which concluded on Tuesday with a deal to keep talking, some intrepid businesses and investors have begun considering an idea that just days ago seemed impossible: What happens if North Korea opens up its economy, even just a little?
Could global businesses get a shot at building East Asia’s last untapped growth market? What are the chances that North Korea, as one South Korean official recently suggested, would welcome American brands like McDonald’s, or a Trump Tower in the North’s capital, Pyongyang?
The chances are slim — very, very slim — to none. Still, some businesses are setting up internal task forces to start drawing up plans, according to lawyers and advisers who specialize in North Korea. Shares of companies that could profit are starting to rise, in what one analyst called the “Rocket Man rally.â€
A few big companies have tentatively reached out to contacts in North Korea, said Wook Yoo, a partner at Bae, Kim & Lee, a South Korean law firm. Others have inquired about where to begin. “We have received calls from several companies which are quite interested in preparing future business with North Korea,†Mr. Yoo said.
It is not clear how many companies are looking at the idea, or which ones. Company officials are loath to discuss their plans publicly. Initial feelers into North Korea risk violating United States and international sanctions. Those restrictions have become so tight that investors have stopped early efforts to crack the market.
And then there is the fact that North Korea and the rest of the world are not likely to ease their economic limits on each other anytime soon. Even if progress were made, the world would still be dealing with a leader who diverted millions of dollars from his country’s economy to build and test intercontinental ballistic missiles and a hydrogen bomb, leading to food shortages for his people.
Nevertheless, many in the business world find the idea intriguing. The North has a young population and an underground entrepreneurial bent. It has a large amount of resources like rare earths and iron ore. And South Korea has offered the North a modernization plan that includes building railways and power plants.
“This is where the money is to be made,†said Justin Hastings, an associate professor at the University of Sydney who wrote a book about North Korea’s economy. That is, “if you can figure out how not to get expropriated,†Mr. Hastings added, citing Pyongyang’s history of seizing assets.
A sudden change in the North’s business climate also would not be unprecedented: Earlier this decade, once-closed Myanmar rapidly opened for business, attracting big companies from around the world.
“They want American investment coming to North Korea,†Chung-in Moon, a senior South Korean presidential adviser, said in April on CNN, adding that, “Yes, they want Trump Tower. They want McDonald’s and all these kinds of things.â€
Nearly three quarters of South Korean businesses would be willing to make an investment in North Korea once sanctions were lifted, according to a survey of 167 companies published last week by the Maeil Business Newspaper in South Korea.
When it comes to business, North Korea is not for the faint of heart. Its economy is half the size of South Korea’s sixth-biggest city. For businesses, electricity and water would have to be secured. Mr. Yoo, the lawyer, said that North Korea lacks a basic way for foreign companies to resolve business disputes.
Of the few Chinese, Japanese and South Korean companies that have ventured into the North, many have seen their assets confiscated.
Xiyang Group, a Chinese mining company, finished building its first mine there in 2012 only to see North Korea kick its employees out of the country and take over. Xiyang said it lost about $45 million from the project.
The Kaesong Industrial Park, a manufacturing hub built by Hyundai on the North Korean side of the border more than a decade ago, was shut down twice before the North froze the South Korean assets two years ago. The 123 firms operating in the complex later said they lost a combined $1.3 billion.
In addition, the North’s work force lacks basic skills, say those who have visited the country.
“The biggest gap that we are trying to plug — and it’s really, really big — is how isolated North Korea has been,†said Geoffrey See, the founder of Choson Exchange, a nonprofit that organizes workshops with North Korean students, academics and scientists. “If you look at other countries that open up, they already have diaspora to bring back know-how.â€
Simply getting an answer can be hard, Mr. See said. He recalled sending an email a decade ago to an official in Pyongyang about opening up Choson Exchange. It took two months to get a response.
Then there is North Korea’s domestic companies and their deep connections with the government.
“There are vested interests in North Korea,†said Christopher Green, a researcher at Universiteit Leiden in the Netherlands who has interviewed North Korean defectors. “The economy is underdeveloped and there are people who are already making money there. The last thing a North Korea firm would like is for a South Korean firm like Samsung to come in.â€
Nevertheless, some see promise.
Shares in South Korean companies like Posco, the South Korean steel maker; SK Innovation, an oil refining company; and Korea Aerospace — firms that could profit from an economically open North Korea — have rallied over the past week. Ordinary mom-and-pop investors hopeful of a deal are contributing, said Paul Choi, head of Korea research at CLSA, the brokerage firm.
In Europe, one entrepreneur who has done business in North Korea since the late 1990s was watching the summit meeting closely. “I’m cautiously optimistic,†said Paul Tjia, the founder of GPI Consultancy, which advises companies on offshoring their information technology operations.
“We are receiving more questions about North Korea from European companies,†Mr. Tjia said. He said he was planning an “information and communications technology mission†to North Korea in September in order to introduce European companies to the possibilities for outsourcing their basic technology and software development needs to North Korea.
Hyundai has future plans for the Kaesong complex that include a zone for technology that could accommodate 2,000 companies and 600,000 employees, according to its website. It would even have a golf course.
And despite North Koreans’ lack of basic skills, the country has a class of would-be entrepreneurs who are eager to learn, said Mr. See of the Choson Exchange program, and others.
Ian Collins, a consultant who traveled to the western North Korean city of Pyongsong in November through Choson Exchange, said one of the 80 participants in his workshop told him that some women had started a business renting out their bedrooms on an hourly basis to amorous young couples.
While there, Mr. Collins visited an “app store†— a place that sells smartphone apps, like people have in the rest of the world. But this one was a physical, bricks-and-mortar store in which employees loaded people’s phones with apps.
“They have had to come up with side businesses because the state can’t look after them anymore and the gray economy is huge there,†he said.
And, like budding entrepreneurs in any country, many are dreaming up business plans, Mr. Collins said.
“One of the questions I got asked was, ‘What innovation is going to provide the most amount of profit?’â€
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