North Korea: a good place to invest?

Kaesong Industrial Zone

Kaesong Industrial Zone

The Kaesong Industrial Complex is an enclave in North Korea, close to the border with the South and the DMZ, where it was agreed that South Korean companies could invest and employ North Korean workers, taking advantage of low labour costs and a disciplined, Korean-speaking workforce. Construction started in 2003, and earlier this year the site was employing 53,000 NK workers and 800 staff from South Korea (ROK).

This was widely regarded as a major breakthrough, and an opportunity to start engaging NK with the rest of the world.  I (and many others) hoped it would be a model for future development, with perhaps a number of such zones.  Kaesong was explicitly for ROK companies to invest in, but many Korea-watchers hoped that future such zones might be extended to accommodate companies from elsewhere as well.  The Kaesong site had direct road and rail access to the South, and the project carried high hopes of success.

Several problems arose along the way.  In 2009, Pyongyang unilaterally tore up rent and wage agreements and demanded much higher wages (which are paid not to workers, but to the NK government, by the way).

Worse was to come.  Earlier this year, in one of their periodic fits of petulance (North Korea has a policy of artificially ramping up tension and then backing off — see my earlier piece “Land of Cognitive Dissonance”,  they decided to block ROK staff from the site, and to withdraw the 53,000 local workers.  Since then there has been an agreement in principle to re-open the site, but as usual they have failed to reach any consensus on the details.

ROK investors have of course become very concerned about lost production, but also about maintenance of equipment in a site that has effectively closed.  When I was in NK earlier this month we heard that agreement had been reached to allow investors to remove finished goods and work-in-progress — but not to withdraw manufacturing plant and equipment.

We raised this issue in our meetings with the Vice-Ministers of Trade and Foreign Affairs, and were treated to a long litany of excuses and justifications.  (If excuses were a tradable commodity, NK exports would surge).  I have observed before that when one flags up the lamentable economic performance of the North with officials of the régime, they will blame anything and everything — the Americans, the sanctions, the weather, natural disasters, the topography — everything except, of course, their own policies, which (they seem to think) are above criticism.

I had to explain to them — courteously but very robustly — that a key issue for international investors is political risk.  We in the UK should know a lot about that.  Our energy market is in disarray largely because of political risk.  Potential investors don’t know which way the government will jump next; whether policies and subsidies will be altered at the stroke of a pen.  They see Angela Merkel in Germany peremptorily deciding to close the German nuclear fleet, and conclude that they don’t need those sorts of risks in the UK.

But I digress.  I explained to our NK friends that before politics, I spent a third of a century in international businesses, and have some knowledge of investing in emerging economies (I opened one of the first foreign JVs in Saigon, Vietnam in 1989).  And I told them in no uncertain terms that international investors would have no interest at all in excuses and explanations.  They would simply observe that the Kaesong project had been cut off at the knees, and they would cross North Korea off their list.

I don’t know if the NK officials understood the point.  They certainly should have done, because I was very clear.  They will not achieve the second plank of their Beloved Leader’s strategy, economic development, as long as they are prepared to put posturing and petulance, prevarication and provocation, ahead of prosperity and progress.

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6 Responses to North Korea: a good place to invest?

  1. Eric Worrall says:

    Someone told me a story once about NK. A friend was invited to North Korea on a consultancy gig. At the end of the week, the refused to give him an exit visa – they said “the job isn’t finished”. After a round of frustrating obfuscation, they finally told him he could have all the cigarettes he could smoke, and all the girls he could f*ck, if he stayed on another week. He replied “I’m married, and I don’t smoke”. But he agreed to stay another week, to smooth things over. Thankfully at the end of that week, they gave him his ticket out.

    Needless to say, he never returned.

    North Korea is a country of slaves. Don’t be surprised if they fail to respect your rights.

  2. ps3person says:

    This is a country of the frightened, cowed, ill informed, and brainwashed, so how can it ever be a place to invest…even to visit? The regime is cruel and malign, and maintain stability through fear and cruelty, and by its own actions demonstrates its unreliability and untrustworthiness, so why are we even having this conversation?

    • Good question, ps3person. So few people get to visit NK that I thought it would be useful to share my experiences. The only way we get to know how bad it is, is because people who know something about it, tell us.

  3. ogga1 says:

    Morning ps3person

    Your post could very well describe a country a lot closer to hand with current and past
    governments of late.

  4. Jeremy Zeid UKIP Harrow says:

    A perfect analysis Roger. Perhaps it’s time to explain the same acts of life to the other of the world’s permanent victims of their own hatreds, intransigence, petulance, posturing, the Palestinians who also never miss an opportunity to miss an opportunity. Waiting for the first leftist wag to blame it all on the “Zionist lobby”, Mossad, Israeli intransigence, the “settlements”, America, the weather, too much sand, too little sand, cholesterol, anything but the Jew hating, child indoctrinating, mysogynistic, Palestinians and their malignant leaders, Fatah, Hamas and various hate spewing offshoots.

  5. Neil Craig says:

    They can understand the point. Mentioning it to anybody above them is the dangerous bit, which is why dictatorships don’t fix things when they go wrong.

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