North Korea: barely open for business
No one has seriously suggested North Korea is likely to be a market for New Zealand businesses looking for untapped markets in Asia any time soon. There is no telling when unification might occur and even it were to, the risks of entering a market so economically challenged are likely to outweigh the benefits of doing business there for a long time. Andrew Salmon, a freelance correspondent in Seoul, looks at the current level of foreign business activity in North Korea and how South Korean companies are interacting with the Northern state.
North Korea, on the surface, might appear to be an entrepreneur's dream: The last untapped market in booming Northeast Asia! However, given the tremendous risks – largely geopolitical, but also economic – implicit in the nation, there are few good reasons to explore this market at present. Moreover, unification appears as far off as ever.
When North Korea’s founding father Kim Il-sung died in 1994, many in South Korea predicted unification, on the grounds that his son, Kim Jong-il, lacked credibility with either the elite or the masses. But these predictions underestimated the resilience of the system.
When famine struck in the late 1990s – a disaster that may have killed two million, or 10 percent of the North’s population – many, particularly in the United States, anticipated regime collapse. Again, Pyongyang’s durability was underestimated. Indeed: Since the Korean War ended in 1953, just over 15,000 North Koreans – a barely perceptible percentage of the population of 23 million – have escaped to the South, even though the Northern border is highly permeable. This figure proves the remarkable hold the regime has on its people.
And during the 10 years of liberal-nationalist rule in South Korea (the Kim Dae-jung and Roh Moo-hyuun administrations, in office from 1997-2007) there was much talk and hope of inter-Korean cooperation, cross-peninsula through trains linking to the Trans-Siberian express, overland oil pipelines from South Korea to Russia and so on. Again, most of this is now seen as wishful thinking. Neither inter-Korean nor North Korean-American rapprochement is even on the horizon. In the middle of this year, with UN sanctions facing off against North Korean missiles and nuclear tests, the crisis was at its most dangerous level since 1994. Any unification at present, it seems could come only from a regime collapse: Given the North’s failure to open up or reform its economy along the Chinese, or Vietnamese model, few Korea watchers currently predict any form of soft landing.
North Korea is the world’s most opaque society and a sudden implosion, as the regime tears itself apart internally, could take everyone by surprise. Anyone who claims he or she can predict developments should be regarded with extreme suspicion.
Of the very small number of companies that have penetrated the North Korean market, few have prospered. Europeans have outsourced animation to Pyongyang studios; some entrepreneurs have attempted to extract North Korea’s known gold reserves; and DHL runs a courier business. But most enterprises have failed. Stanley Ho has closed his hotel-casino in the northeast. A Daewoo-funded mineral water venture went out of business. A Thai cell phone firm saw its investment scuppered when mobiles were banned. A British American Tobacco plant has reportedly closed. Consultants who do business with North Korea can boast few successes. The only businesses that have been run with any longevity – such as a hotel, a bowling alley and a car factory – are run by the corporate arm of Sun-young Moon’s Unification Church.
Another model being tried is inter-Korean cooperation projects, set up with South Korean money in the border zones. The first, the Mt Kumgang Tourism Zone, was closed in 2008 after a South Korean female tourist was shot dead by a North Korean soldier. The second, the Kaesong Special Industrial Zone, in which approximately 100 South Korean firms are manufacturing low-tech goods using North Korean labor, is facing a questionable future. A South Korean employee of Hyundai was detained by the authorities from March until August this year for allegedly denouncing the North's political system. North Korea has also demanded that all wages be increased four-fold. In response to the South’s hard-line approach to resolving these issues, the North has halted or curtailed key joint projects except for the Kaesong complex.
The one exception to this dismal picture is provided by Chinese entrepreneurs, who can travel relatively freely around the country. Chinese companies and individuals are known to have signed a number of potentially lucrative deals exploiting North Korea’s natural resources. There is also thriving cross-border trade, with Chinese selling a range of goods – processed foodstuffs, basic lifestyle goods, medicines, and electronic products. However, the legality of this trade is questionable, and it is not known if there are any nationals beyond Chinese and North Koreans engaged in it.
In the event of a North Korean collapse, and a South Korean assumption of control, perhaps after a UN-administered interregnum, it seems likely that borders will be maintained – neither China nor South Korea is keen to digest a flood of impoverished, under-skilled refugees. The chaebols (South Korean family-run conglomerates) could well be parachuted in with long-term South Korean loans to attempt to do what they did in the South in the 1960s, 70s and 80s: i.e. leverage manpower and credit to create an economic base from nothing. What opportunities there would be for foreign companies under this scenario is anyone’s guess.
- By Andrew Salmon
Andrew Salmon is a freelance contributor to a number of English-language publications based in Seoul. He is the author of a recently published book on the Korean War.
Read more:
The North Korean nuclear threat is discussed in an article by Vaughan Yarwood.
Story uploaded October 2009.