N.Korea in Fresh Attempt to Lure Foreign Investment

Even as North Korea struggles under UN sanctions and is in the midst of a controversial currency reform aimed at breaking the back of a nascent free market, the reclusive country is apparently in the process of changing laws in order to attract more foreign investment, an expert said Wednesday. It is even offering foreign companies wages cheaper than those paid to North Korean workers at the joint-Korean Kaesong Industrial Complex, according to Jack Pritchard, president of the Korea Economic Institute in Washington D.C.

Pritchard, who visited Pyongyang last month along with Scott Snyder, director of the Center for U.S.-Korea Policy at the Asia Foundation, told reporters in Washington. The North Korean trade department official they met there told them there are no strikes among North Korea's skilled workers and were very aggressive in luring foreign investment. He added North Korean officials offered wages of 30 euros a month (around US$44), which was lower than the average $57 paid to workers at the Kaesong Industrial Complex. The officials said they were also willing to offer various incentives to foreign companies interested in taking part in the construction of 100,000 homes in Pyongyang. North Korea appeared to be changing its attitude toward foreign countries as part of its goal to become a strong and powerful nation by 2012, he said.

In an article for Global Security, the Internet-based provider of military and intelligence information, Snyder wrote, "North Korean colleagues at the Ministry of Trade appeared genuinely surprised and dismayed when we mentioned that UN Security Council Resolution 1874... contains provisions prohibiting companies from making new investments in North Korea."

Snyder said North Korea's interest in foreign investment as part of its goal to become a "strong and powerful nation" by 2012 is a new development and one that could play a role in resolving the nuclear stalemate.

But efforts to attract foreign investment and capital over the past 25 years have been a disaster. North Korea announced new regulations in September of 1984 to allow businesses from capitalist countries to operate there. It set up special economic zones in Rajin-Sonbong in 1991 and in Sinuiju in 2002. But the Sinuiju project never got beyond the ground-breaking stage due to conflict with China, while empty factories litter Rajin-Sonbong.

North Korea aimed to attract $7 billion worth of foreign investment into Rajin-Sonbong, but actual investment amounted to only $140 million. According to the South Korean government and other sources, there are an estimated 400 foreign businesses operating in North Korea. Most of them are small businesses run by Chinese or North Korean residents in Japan. The shining exception is the Egyptian telecom company Orascom, which offers mobile phone services in the North. "It's more accurate to say that there are no major foreign businesses operating in North Korea," said Cho Dong-ho, a professor at Ewha Woman's University.

North Korea forged its first pact guaranteeing foreign investment with Denmark in September 1996 and signed similar pacts with around 20 countries, including China, Russia, Singapore and Switzerland, as of 2008. There have been consistent reports that businesses in Europe and Southeast Asia were interested in doing business in the North, but hardly any made the move.

Cho Myung-chul, a professor at the Korea Institute for International Economic Policy, who taught economics at Kim Il Sung University in North Korea, said, "The reason why no listed foreign companies are operating in North Korea is because they may end up on the list of businesses subject to U.S. sanctions." This is one of the reasons why North Korea has tried so desperately to be removed from the U.S. list of terrorism-sponsoring countries.

And even if foreign businesses are interested in investing in North Korea, its lack of infrastructure, including steady power supply and adequate roads and ports, make it impossible to operate factories there. Cho Young-ki, a professor at Korea University, said, "You have to build a power plant if you want to build a factory in North Korea. Cheap labor does not mean businesses will profit there." The electricity used by the Kaesong Industrial Complex is provided by South Korea, while Hyundai Asan operates its own generator at the North Korean resort in Mt. Kumgang.

englishnews@chosun.com / Dec. 10, 2009 13:12 KST