North Korea: Who says they don’t want Foreign Investment?

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Seoul, 10 Sep. While North Korea may be closed-off to the rest of the world, the nation is seeking foreign investment – but it has a lot of convincing to do.

Recent news reports about North Korea’s eccentric Kim Jong Il being seriously ill or even dead have raised speculation as to what the country’s future will hold without him. Some believe his second son, Kim Jong Chol, 27, will be his successor. He is said to wield considerable power with the military, as opposed to his 37-year-old brother, Kim Jong Nam. Jong Nam lost his position in the Security Ministry after entering Japan on a fake passport. All he wanted to do was visit Disneyland.

Kim Jong Il didn’t show up to the nation’s 60th anniversary parade which was recently held - a massive event he has never missed. But it’s not like his absence will have much of a negative economic effect on the country. To the contrary, in fact.

Economically, North Korea is mostly closed off to the world, and that’s the way the Dear Great Leader likes it. However, the command economy has relaxed a bit had has in fact tried to encourage a little bit of small-scale, controlled, entrepreneurship. Nevertheless, the Index of Economic Freedom (heritage.org) ranked North Korea’s economy as being 3% free – putting it at 157 out of 157 nations.

The economy receives $113 million in FDI, and many more million in aid from China, the US and South Korea. That’s not so surprising since its big brother – communist Russia—is no longer around to support it. It its absence, the country simply prints counterfeit money and sells guns to keep itself going, according to the Index of Economic Freedom. Interestingly, there are a few special economic zones – these are the almost the only places where foreign investment is allowed.

Despite the Index of Economic Freedom’s claims that North Korea “does not welcome foreign investment”, the regime has quietly invited various delegations to the country to kick start its economy through foreign investment.

One such trip was led by Singapore’s former Senior Minister of State for Foreign Affairs and former ambassador to South Korea, Lee Khoon Choy. In this 2007 trip, Lee brought along some directors of companies involved in manufacturing, construction, and gambling, to assess the potential of investing in the behemoth 105-storey Ryugyong Hotel, among other things.

Construction of the monstrosity ended in 1992, resulting in a decaying skeleton of concrete, lacking windows or any internal finishing. A director of one of the companies that went to North Korea along with Lee, who declined to be named, said, “They only push for foreign investment via government invitations. They are very quiet about the way they invite foreign investment to their country. They have to be – they are communist, and are supposed to be self-sufficient.”

“We were ready to invest in the hotel but they could not give us answers. They were not very forthcoming with their support from their own government agencies. They just wanted us to put up the investment to refurbish the building. They didn’t even go so far as to address the next issues and how they would protect our investment,” he continued.

South Korea wants to close the economic disparity with a view to future reunification. The Korean people have been divided and South Korea knows reunification is impossible unless the North Koreans adopt a modern economic system. Projects worth approximately $11.2 billion have been agreed upon between Kim and South Korean President Roh.

So it seems like Kim Jong Il’s regime has been good at getting foreign investment at least marginally interested, but they are not so convincing when it comes to the security of the investments. Only the South Koreans have invested heavily, but they have historic and cultural reasons to do so. And as long as Kim continues to be so elusive and isolated, that sense of security will not emerge.

If Kim is in fact critically ill or even dead, can the country emerge as an economic power? It sure has the natural resources – 24 times the size of the south’s, according to the South Korean Chamber of Commerce and Industry.

If Kim’s successor is anything like he is or Kim Il Sung was, which will be the case if one of his sons takes over, we can only expect more of an isolated, cut-off economy – unless he can instill some iota of security in the eyes of foreign investors.

Omar Park, EconomyWatch.com