Asia Times: Is North Korea open for business?


	October 20, 2001	atimes.com

The Koreas

PYONGYANG WATCH
Is North Korea open for business?
By Aidan Foster-Carter

The previous column noted a welcome upsurge in foreign business interest in North Korea of late. Europe is a special focus, doubtless reflecting recent moves by most European Union member states to recognize the DPRK; only France and Ireland are still holding out. In February, an EU team visited to explore economic cooperation in general and in April the Dutch arrived with an agenda said to include power facilities export. And, a 10-member British delegation is in Pyongyang until Saturday to assess business opportunities.

In the other direction, a DPRK mission went to Italy in March seeking investment in steel and textiles. In June, it was Spain and Belgium to buy machinery. Most recently, in September North Korea's vice trade minister Kim Yong-jae and 14 colleagues spent a week in the Bayern (Bavaria) region of Germany, with a wide agenda. No fewer than 57 companies, including such big names as Siemens, Alstom and Corning, attended a seminar promoting trade and investment in a wide range of sectors: railways, aviation, energy, telecoms, and textiles. This followed a visit to Pyongyang in May by a 30-strong Bavarian government team, led by a state minister, which agreed to set up the seminar and form a joint economic committee.

All this raises hopes that North Korea is at long last ready to do normal business with the outside world. But the proof of the pudding is in the proverbial eating. Reporting all this activity, the Seoul daily paper JoongAng Ilbo headlined its article "N K in the middle of vibrant economic exchanges". Not so; or at least, not yet. These are just people exchanges, or scouting groups. The real test is what comes next. Will these contacts lead to lasting business links, be it trade or investment? Or will these be just the latest in a long line who, unlike Julius Caesar, came, saw, and didn't conquer but shook their heads and went home?

For there is a history here, and it goes way back. Initially, the DPRK had few dealings with Western firms as its economic links were overwhelmingly with the Soviet Union and China. A few individuals, pro-communist often rather than profit-seeking, specialists in the then equally esoteric China trade (how times change!), extended this to occasional import-export dealings with Pyongyang. But this was all very small beer. That all changed in the early 1970s when North Korea went on a sudden spending spree. European firms got big orders for trade and machinery, which banks were glad to finance and governments to guarantee. Ironically, communist nations then were a good business bet, being famous for their caution and probity.

Had anyone run a credit check, they'd have learnt that the DPRK is different. Already 30 years ago it had chalked up big debts to Moscow: its very first loan ever, dating from 1949, remains unpaid. It promptly did the same to its new partners, defaulting in all directions to in effect invent the third world debt crisis. First in, last out. Having welshed on one rollover after another, since 1984 Pyongyang hasn't paid a cent. Its cumulative debt, with interest and including to the old Soviet bloc, now exceeds US$12 billion.

True, a lot of poor countries fell into debt in the 1980s. But bankers with whom I've spoken reckon North Korea is unique. Others couldn't pay; but Pyongyang, they believe, wouldn't pay. Whether deliberate or no, this was not smart - since of course it cut off all future access to credit. So in the 1980s when (West) Germany built a state-of-the-art, turn-key cement plant at Sangwon, east of Pyongyang, the deal was cash in advance: a cool $140 million. That remains the norm. A British firm currently updating the DPRK's main music recording studios is also being paid up front for the job. Nice work if you can get it.

But with North Korea far poorer now than a generation ago, and shorter still of foreign exchange, lack of access to capital markets is a big burden. While no one now expects Pyongyang to pay all its old debts, closure is needed both formally and to build confidence. Russia, which is owed the most, is still pressing. Over 100 European banks formed a consortium which has sued the DPRK in several jurisdictions, and seized some assets. Two banks that actually set up in North Korea are too young to have got their fingers burned in the 1970s, but they had their own problems.

Peregrine went bust in the Asia financial crisis, though its DPRK joint venture continues in some form. It now has no competition, since ING of the Netherlands pulled out just two years after opening. The reason? There was virtually no business to be done.

That is the other big issue. Even if trust and finance can be resolved, is North Korea really ready to open up as China did 20 years ago, starting its long march from communist closure to globalization's brightest hope? True, China offers sheer market size on top of the lure of cheap labor. But the DPRK's educated and disciplined workers could certainly make money for someone - if only the state stops monopolizing and overpricing supply. That is just one of many factors that make North Korea a hard sell for business.

As witness Jean-Jacques Grauhar. Now running the EU chamber of commerce in Seoul, before that he spent several years in Pyongyang as a consultant. That wealth of experience enabled the chamber to publish a guide to doing business with North Korea - in 1998, already. Three years on, the sole big Western firm to have invested in North Korea is ABB, last year, and even that has gone very quiet. We live in hope that all this fresh interest will be the breakthrough, at last. But it will be the triumph of hope over experience.

* PART 1: A bad hair day

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