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If risk and return—rather than risk and potential return—were correlated, then money would be pouring into North Korea. So we have some begrudging admiration for the intrepid Europeans who are looking for investment opportunities in North Korea; Felix Abt, in “A Capitalist in North Korea: My Seven Years in the Hermit Kingdom” provides an overview of the roller-coaster even for someone deeply committed to engagement.
But the timing of the European Trade and Investment Mission to North Korea’s business promotion tour to Pyongyang seems particularly inauspicious given that Europe is in the process of bringing its sanctions regime into line with UNSC 2270. The full European response is not yet posted on its North Korea page. However, the statement by High Representative/Vice-President Federica Mogherini suggests that the EU is not only translating the resolution into EU directives, but is also debating so-called “autonomous” sanctions that would go beyond 2270. As Brent Berger points out in a recent issue brief the EU does not have a common export control regime, or centralized reporting and common standards; each country will therefore have to take steps to implement the EU directive. Nonetheless, what you see from New York is closer to what you will get from Europe than from many other region (the recently released Panel of Experts report, which we will review next week, provides data to this effect).
Despite the bad timing, the investment tour invitation does provide substantial insight into what the North Koreans are seeking. You have to sympathize with the North Korean companies and work units that are doing their best in an extremely difficult environment that is about to get worse. We’ve previously talked about the stillborn foreign investment drive, including the ambitious plans for Sinuiju (recent posts are here, here, and here). But the invitation for this business tour actually provides extremely interesting information on a number of specific sectors. The discussion of garments notes that “several large, well-known European textile clients, such as C&A from the Netherlands and Gerry Weber from Germany have experiences with manufacturing in the North” (although they do not say when exactly) and that “there are about 15 large garment exporting enterprises in North Korea, each operating several factories spread around the country.” This is exactly the kind of specialization that would take off under a more rational leadership. Even now four of North Korea’s top five exports to China are in textile categories.
Of particular interest is the attachment of a 60-page report on the Wonsan-Mt. Kumgang International Tourist Zone. The report is not without ambition; a whole series of large-scale projects are outlined, including some infrastructure ones with price tags running into the hundreds of millions of dollars. Just a few examples: a $324 million railway renovation project; a $100 million hotel; a $80 million financial services center project; and a $52 million brewery. These numbers can be read as just a fraction of the opportunity cost North Korea pays for its current course of action. The guide does not address the fact that a number of South Korean assets at Kumgang were effectively confiscated; nor does it mention that the artillery tests that followed the UN resolution were launched from Wonson (picture above). Rather, it lists sixty North Korean laws that purport to provide property and investment protections. Good luck with that.
Unless something miraculous occurs between now and May, it is likely that the Party Congress will endorse some variant of the byungjin line. China’s willingness to go with a deep engagement strategy up until now appears to have kept this hope alive as trade and investment from the rest of the world fell away. The message in these investment tours for North Korea is probably precisely the opposite of what they would like to see: that the rest of the world does not hold to the byungjin line and interest in North Korea is inversely correlated with its propensity to escalate.
