North Korea is referred to for short by some analysts as “Noko” but seen through the eyes of potential investors the so-called “hermit state” might better be called “no go”. That captures the glacial pace — one step forward and one skid back — at which the North is opening up to the outside world.
China remains by far and away the most important single investor in its besieged neighbour, although according to a recent analysis by UK information and consulting group Oxford Analytica (OA), “Pyongyang feels uneasy about this predominance and its political implications.”
But, adds OA, “any would-be investor will face significant challenges” on the economic front in North Korea — not the least being “poor infrastructure, restrictions on personnel and [possible] expropriation” of assets.
This is to say nothing of the formidable political difficulties that confront Asia’s (and one of the world’s) most isolated states.
“Politics override the economy in North Korea,” says former Goldman Sachs (Asia) MD Kenneth Courtis.
“The number one preoccupation of the regime is survival. For that, the only real deal is a direct bilateral negotiation with the US, [which] means that politically the situation is essentially blocked and is likely to remain so for a long time.”
FROM A TRICKLE TO A SEA
Yet in spite of sanctions imposed from outside “a trickle of foreign investment is coming into North Korea,” Courtis notes. “Local markets are discretely developing in major urban areas. Some reforms are moving cautiously ahead. There is an informal economy, which functions quite well, if semi-disguised.”
The financial wherewithal to develop and modernise Asia’s most closed economy exists, if only politics allow.
“If nuclear issues are peacefully resolved and international sanctions are lifted, North Korea can expect large foreign aid and capital inflows, probably no less than what Myanmar is experiencing currently,” says head of the IMF’s Asia and Pacific department Changyong Rhee.
“International organisations including the IMF, and [North Korea’s] neighbours, in particular [South] Korea, Japan and China, can play an important role in catalysing foreign investment.
“South Korea’s record of rapid development will be a positive reference factor in encouraging foreign investor participation.”
According to the OA analysis, “North Korea is not devoid of potential. It has significant untapped under-invested mineral resources, abundant cheap skilled labour and an emerging middle class that offers a market, albeit limited, for foreign consumer goods.”
Last November, as OA notes, “the North Korean government confirmed its interest in attracting foreign direct investment (FDI) when it established 13 new special economic zones (SEZs) strategically located for accessing potentially exportable resources.”
Last year too, an intra-Korean agreement was reached on re-opening the Kaesong Industrial Complex in North Korea, along with a pledge to internationalise the zone. The government has also sent senior officials to places such as Singapore and Indonesia to look at their experience with foreign investment.
In coming years, adds OA, North Korea is likely to continue to “actively encourage” foreign inward investment. But the consultancy cautions at the same time that “the forced eviction of foreign companies and confiscation of their property are very real risks.”