Wanna do business in North Korea? Good luck!
SEOUL, South Korea —
For foreign investors, North Korea has long been akin to a dark, forbidden
outpost in a distant galaxy.
It is among the most
difficult countries to navigate. Its dictator, Kim Jong Un, oversees a heavily
sanctioned nation and, by some measures, one of the poorest and most corrupt.
In other words, it's
not exactly an entrepreneur’s dream.
Yet over the past
decade, the regime has begun to relax some control over its borders and its
centrally planned economy, opening space for small-time trading activities.
The changes have been
sufficient to attract a small but intrepid group of frontier market
entrepreneurs, determined to harvest a profit from this untapped market.
Of course, those
investors still face massive hurdles.
Among the biggest
obstacle is United Nations sanctions, explains Felix Abt, a former
pharmaceuticals executive in Pyongyang, and author of the memoir A Capitalist in North Korea.
Abt, a Swiss investor
who now lives in Vietnam, ran a pharmaceutical company called PyongSu during
the late 2000s. The company churned out medicine for the small but growing
market of North Koreans who can afford it.
In 2006 and 2009, the
United Nations passed its first two rounds of sanctions, putting the future of
Abt’s business in question. The manager worried he would no longer have access
to chemicals needed to process food and pharmaceuticals.
The reason? Those
materials could theoretically be used in chemical weapons, making them
so-called “dual-use products” with military and civilian applications. Dual-use
products are banned under the current system. North Korea is believed to be one
of four remaining nations with a chemical weapons stockpile.
The UN enacted the
sanctions to hinder North Korea as it reportedly sought to develop weapons of
mass destruction. Governments were acting in response to rocket launches and
underground nuclear tests.
But, Abt explains,
there’s a flipside to anti-nuke efforts: average North Koreans suffer. “Without
these banned products,” he told GlobalPost, “the quality and safety of these
consumer goods are compromised.”
While living in
Pyongyang, Abt’s life insurance plan was revoked, and he says that LinkedIn
shut down his profile page after noticing his North Korean address.
Other experts run into
problems even though their projects aren’t covered by sanctions at all.
In August, the British
bank Barclays informed North Korea scholar Andray Abrahamian that his account was being closed, declining to give an explanation
on the grounds of confidentiality.
Abrahamian is the
executive director at the Choson Exchange, a non-profit based in Singapore that
puts together business training sessions for young North Koreans. But the
sanctions don’t cover educational exchanges. He has since found a new bank, he
told GlobalPost.
Abrahamian thinks his
group’s connection to North Korea was to blame for Barclay’s move. Banks and
multinational companies shy away from organizations that could carry any
liability related to North Korea. Many fear they’ll run afoul of sanctions, or
that their dealings will end in public-relations disasters.
In this case, “Choson”
— which is what North Koreans call their country — may have tipped off
the bank.
Yet sanctions are only
one matter that has dampened investor interest. “The legal framework, credible
commitments, and infrastructure have to be right,” said Daniel Pinkston, a
Seoul-based analyst at the International Crisis Group.
North Korea is lacking
in all three, which explains why North Korea’s promises of reform haven’t
translated into larger amounts of foreign direct investment.
Despite those
barriers, firms from China and Mongolia have fared somewhat better. Last year,
a Mongolian oil company bought a 20 percent share in a North Korean refinery,
possibly signaling that top officials were under pressure to attract foreign
investment.
Chinese companies have
also been active in the handful of special industrial zones opened in North
Korea since the 1990s.
But these suitors have
an advantage over their Western counterparts: Many have secured guarantees from
“high-level political figures who somehow are perceived to be credible,” said
Pinkston.
China, for instance,
can use its diplomatic clout and trade agreements to ensure Pyongyang holds up
its end of the bargain, Pinkston said. In a market that remains underdeveloped
and potentially lawless, that’s one of few ways to ensure recourse.
