Attention K-Mart Shoppers
No, not that K-Mart. This is a Red Light Special. Stratfor re North Korea’s economic charm offensive, as Kim seeks all the benefits of foreign investment, without any of that political reform, standard-of-living raising nonsense. Stratfor outlines great ground-floor opportunities for boutique investment in old-fashioned totalitarianism for those not averse to a little risk:
North Korea is on a foreign relations charm offensive in East Asia. Prime Minister Kim Yong Il is taking the “investment and trade with North Korea” road show through Southeast Asia, and Kim Jong Il himself has suggested that North Korea might use Vietnam as a benchmark model for reviving its decrepit economy …
North Korea is aligned with the goals of the Vietnamese growth model, but it plans to embark on its own strategy — characterized by isolated and strategically located special economic zones (SEZs). Like Vietnam, it wants economic growth without political change, except its desire to prevent the latter is even stronger. Any foreign investor wanting to play inside its borders will have to wear a political straitjacket to gain entry.
… (Vietnam) is the real-life economy that comes closest to what Pyongyang considers an ideal model — namely, one that has minimal impact on the regime’s tight social and political control but still allows for an increase in foreign investment inflows.
The North Korean regime abhorred what happened in the Soviet Union with perestroika and, despite its initial enthusiasm for Deng Xiaoping’s “Open up to get rich” model, it has become increasingly nervous about how the devolution of economic authority has eroded Beijing’s central political command.
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The main deterrent for any prospective foreign investor is the political risk surrounding Washington and Pyongyang. This risk is epitomized by the recent Banco Delta Asia saga, in which a Macao-based bank was slapped with U.S. financial sanctions for handling North Korean government clients’ funds. … And of course, there is always the risk that Pyongyang could cease to cooperate with foreign investors. The North Korean leadership has no electorate to answer to, and the quality and reliability of its workforce remains untested.
To counter this, Pyongyang is making a heavy sell of its guaranteed pool of cheap, disciplined labor; central accessibility to road, rail and shipping transportation routes; and a location next door to some of the world’s largest consuming economies.
The purpose of these SEZs is to bring in investment, technology and training without exposing North Korea’s populace to Western influences, and without more than a trickle of skills and capital seeping out into the wider country. Each zone is walled off from neighboring cities, with workers cordoned off in housing within North Korean government work facilities … Foreign investors will have little to no control over their workforces.
Outside of the SEZs, the majority of foreign investors inside North Korea fall into one of these categories:
- Politically driven groups (South Korean government-sponsored businesses)
- High risk-taking individual investors and North Korean political/financial specialists who are seeking opportunities and awaiting a change in the political dynamic
- Joint venture consortium funds that spread the risk of each investment deal among multiple foreign investors
- Oil and natural gas companies hungry to tap the potential wealth of resources (e.g., onshore/offshore oil, uranium, tungsten, gold, etc.) that have yet to be fully explored north of the peninsula.
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North Korea is counting on using the SEZs to prove to foreign investors that it is a destination worth investing in, even if uncertainty continues to linger in the form of political conflict with the United States. Though a positive return on investment will not appear until the U.S.-North Korean situation stabilizes, Pyongyang is pinning its hopes on being removed from the U.S. terrorism list in order to end the associated sanctions. This could come as early as the end of the year if talks continue progressing at the current pace.
Ultimately, U.S.-North Korean relations probably will not be normalized for some time, because of the political implications of such a move. But even if North Korea plans ahead and gets its first SEZ stage off the ground, and even if a U.S. economic liaison office is set up in Pyongyang, mass foreign investment is not likely to surge. North Korea’s political straitjacket will deter not only political subversion but also foreign investor entry.
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Posted by Jules Crittenden at 7:55 am on Friday, November 2, 2007
One Response to “Attention K-Mart Shoppers”
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November 2nd, 2007 at 9:39 am
Mugabe is trying a similar approach to the east. The moron believes he can turn Zimbabwe into a vacation paradise. How to do that with 7,000% inflation remains unanswered.