North Korea: An overlooked investment opportunity

CAIRO – 23 June 2018: A recent turn away from full-blown aggressive behaviour between North Korea and the United States, as well as the rest of the world, has left the whole world watching, anticipating, predicting a positive economic outturn for the country.

North Korea’s reach out to the international community is unprecedented—and unexpected, to say the least—and could lead to the lifting of sanctions, opening the closed-off country to international investors, foreign direct investment (FDI stood at a weak $93 million in 2016, compared with $12 billion for South Korea during the same year) and much more.

Having been closed off from the international economy and community for decades, North Korea’s economy offers much room for expansion and growth. Albeit not for the faint hearted or those who like to see the dust rest before they take a move, opportunities within the country mean that North Korea can become the next China if sanctions are lifted and investors become interested (some investors, including Egyptian billionaire Naguib Sawiris have already started investing in the country).



A turn towards North Korea

Recently, North Korea has extended a hand to the rest of the world by setting up multiple meetings with Chinese and South Korean officials, as well as U.S. President Donald Trump. With Leader Kim Jong Un looking towards economic development and away from hostility, China and South Korea have increased investments into North Korea, a move that has its risks for all three countries but one that should lead the countries to much prosperity should North Korea continue on its newly-found peaceful track.

Chinese businessmen, reports The Wall Street Journal, have turned to North Korea, hoping to benefit in case of a deal between the country and the United States.

This is not to say that there is no risk in investing in N. Korea, according to The Washington Post. Just hours ago, Trump declared that North Korea is still a threat, despite a historic summit recently taking place. In fact, to supports his actions taken Friday to maintain the long-standing economic restrictions on N. Korea, Trump said that the country poses an “unusual and extraordinary threat” to U.S. national security, explaining that these sanctions are essential to ensure citizens’ safety.

“The existence and risk of proliferation of weapons-usable fissile material on the Korean Peninsula [and] the actions and policies of the Government of North Korea . . . continue to constitute an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States,” Trump wrote Friday, despite previously tweeting, “Sleep well tonight!” on June 13 (the day after the U.S. President’s meeting with the North Korean leader in Singapore).

“Just landed - a long trip, but everybody can now feel much safer than the day I took office,” Trump also tweeted on June 13. “There is no longer a Nuclear Threat from North Korea.”

Thus, despite the fact that Trump called N. Korea a threat, a move that could be the result of the vicious and continuous criticism that he faced due to the easy-going deal that he struck with Kim, there seems to be much optimism in the air regarding the future of the North Korean relationship with the rest of the world, with many experts and news outlets expecting the situation to get better, and suggesting N. Korea as fertile investment land.

Trump’s decision to cancel joint U.S.-South Korean military exercises as part of his deal with Kim, which did not mean that Kim should stop his nuclear program, drew strong criticism from Senate Armed Services Committee Chairman John McCain.

“It is North Korea — through its nuclear and missile programs, aggressive behavior, and egregious human rights violations — that poses the greatest threat to peace,” McCain said in a statement. “And until North Korea takes concrete steps to change that, no concessions should be made, and the sanctions must continue.”

Although this is true, perhaps the fear and the stigma around North Korea is what makes it such a unique investment opportunity, agrees experts.

“North Korea is now where China was in the 1980s,” says Jim Rogers, whose Rogers Holdings Inc. does not have investments in North Korea. “It’s going to be the most exciting country in the world for the next 20 years. Everything in North Korea is an opportunity.”



Investing in a centrally planned economic country

A stigma exists around the country. Economic or political cooperation with the country leaves spectators waiting for a disaster or a wrong turn. Investment in North Korea is not for the faint hearted.

Who would invest in a country known for food shortages and famines, a backward manufacturing sector and a underachieving economic country?



An investor willing to take the risk and reap the fruits of a high-risk move.

But where should one invest?

Minerals

With an estimated 6 trillion dollars worth of minerals, according to a 2013 estimate by the North Korea Resources Institute in Seoul, most notably, magnesite, zinc, tungsten, iron, coal, copper and limestone, North Korea offers investors in the mining field much opportunity to hold fresh markets and new, undivided spaces. Mining accounts for 14 percent of the country’s economy.

Moreover, according to Business Today Online Journal, many believe that the country boasts a vast wealth of rare earth metals, which are essential for technological advancements because of their use in lightweight semi-conductors. Such metals, experts explain can be found in smartphones, laptops and so on. Although they are found in many African countries, opening up a new market like that of North Korea is set to increase competition between companies and producing-countries alike, lowering the price for consumers and pushing companies to produce more cutting-edge technology, faster.

Supporting this view, economic analyst Maxwell Chung writes, “If international sanctions were to be lifted, North Korea’s undeveloped mining industry would stand out as one of the most potentially lucrative investments in the region. That’s not all, however; the technology sector is just one of the many industries that North Korea, given adequate investments and ripe consumer base, could utilize. North Korea’s economy and its potential for growth continue to be dramatically overlooked.”

There are also unconfirmed reports of oil and gas deposits in the East and West seas, according to Bloomberg.



Real estate

While wrapping up the his summit with Kim, Trump commented on North Korean beaches, calling them “great.”

“They have great beaches,” Trump said at a news conference. “You see that whenever they’re exploding their cannons into the ocean. I said, ‘Boy, look at that view. Wouldn’t that make a great condo?’”

Although Trump’s comments are not typically expected from a President, particularly given the circumstances, they hold true.

In fact, Sawiras has built a hotel in the country. “I have put a lot of money and built a hotel and did a lot of good stuff there,” said Sawiris, who founded North Korea’s first telecom operator, Koryolink. Sawiras explained to CNBC that his investments in North Korea were of about $250 million and that Egyptians having business in North Korea is not new. “It's a historic thing,” he stated.

“I believed I've extended a good service to the innocent people of North Korea who are deprived from seeing their parents who live miles away or can't call their children when they come back from school. They're allowed to have the simplest services that everybody in the west has. It has nothing to do with politics,” Sawiras says about his telecommunications business in North Korea.

“As an investor, I obey by all UN resolutions making sure we're not violating any sanctions, any rules,” Sawiris confirmed.



Cheap workforce

Cheap North Korean labor costs, coupled with North Korea’s working-age population of about 17 million, make North Korea the number one contender for companies looking to outsource their production lines. Multiple research papers suggests that Chine is already tapping into this gold mine, an argument that is supported by the fact that China accounts for more than 80 percent of North Korea’s imports and exports. According to these reports, Chinese companies outsource their production lines, especially in the area of textiles to North Korea, who then return them to their neighbour who distributes it across the world.

Turning to North Korea’s young workforce, it should be noted that it poses a great opportunity and power for investors to tap into, especially investing countries like Japan, South Korea and China, who are currently suffering from greying and shrinking labor forces that threaten their economic development.

“Northeast Asia could become one of the most exciting places in the world,” says Masaaki Kanno, chief economist at Sony Financial Holdings Inc. on this issue.

By working hand-in-hand, North Korea could help investors by offering a lot of cheap workers, and in return, develop economically.

But not without its risk...

Fraud and corruption could stop companies and investors from coming into the country.

“A major deterrent to foreign investment is the chronic breakdown in the rule of law,” J.R. Mailey, an investigator who works fraud and corruption cases in North Korea, told Bloomberg Businessweek.

Bloomberg Businessweek’s Andy Sharp cites Sawiras’s case: “Orascom Telecom Media & Technology Holding SAE, an Egyptian company, helped build the North’s communications networks after entering the country in 2009. But its Koryolink business lost exclusive rights to the market after Kim rose to power in 2011 and financed the rollout of a rival cellular network. ‘The emergence of a state-owned competitor and the strict economic sanctions made our operation much less attractive,’ an Orascom spokeswoman says. But she adds, ‘The lifting of sanctions and peace between the two Koreas will improve the overall business climate in the DPRK and will have a positive impact on Koryolink.’”

Commenting on this, Andrei Lankov, a director with Korea Risk Group, a company that provides clients with information and analysis on North Korea, explains that there is an obvious manner with which the country deals with investors. “Once they see foreign businesses get too profitable, the authorities just take a bigger slice,” Lankov explains.

In fact, Lankov recently explained that the possible lifting of sanctions would not mean safe investments for foreign businesses, suggesting that Kim is expected ensure that the country is a partner in any project, with international companies expected to be minor partners. “Openness would be suicidal for the regime, as it would bring in a flood of information from outside and could loosen its political control,” he says.

Despite some warnings, overall analysts and commentators seem to believe that the country has many strong investment opportunities in North Korea, making it a gold mine for foreign investors willing to take on a big risk for some hefty profits.