N.Korean Special Zones Leave Foreign Investors Cold

      December 20, 2014 08:30

      North Korean leader Kim Jong-un has sought to attract foreign investments in the North's economic zones, but the results have been disappointing. The North's ambitious 24 economic zones have attracted almost no foreign investment.

      The regime has difficulty earning foreign currency in other ways as it is isolated in the international community and its natural resources bring little money due to falling raw material prices.

      ◆ No Foreign Investment

      Kim Byung-yeon at Seoul National University surveyed 176 trading companies in the Chinese border city of Dandong from February 2012 until August 2013 and found that only 17 percent expressed any interest in investing in North Korea's economic zones.

      But 57 percent said they did not want to invest their money in North Korea. The most common reason was the fickleness of regulations, cited by 35.2 percent of the Chinese businesses. They said North Korean officials behave erratically, unilaterally halting trade and replacing heads of businesses.

      One head of a mineral importer said, "Imports of minerals came to a halt in 2012 and 2013 when North Korea launched a missile and conducted a nuclear test."

      A staffer with another mineral importer said, "North Koreans forced our workers to leave the North and banned them from returning for two years."

      Some 53.5 percent of the Chinese companies surveyed said they had bribed North Korean officials.

      "The instability of the North Korean regime increases risks for both investment and policies," Kim said.

      Kim revised foreign investment regulations and designated five special economic zones and 19 economic development regions after he stepped into power. North Korean officials claimed 306 foreign companies invested US$1.44 billion, but the actual amount was reportedly less than $400 million.

      Cho Bong-hyun of the IBK Economic Research Institute said 80 percent of the foreign investment came from Chinese companies, and most of that was poured into the Rajin-Sonbong zone and port. Cho added there has been no foreign investment at all in the other economic zones.

      ◆ Few Foreign Tourists

      North Korea is developing its tourism industry as a new source of hard currency since Kim Jong-un took power. It has built a ski report in Masikryong and opened an equestrian club and an amusement park in Pyongyang. It has plans to build international tourism complexes in Wonsan and Mt. Kumgang.

      But the North earned only around $30 million from tourism in 2012 and that came from Chinese tourists. That is only a third of what the North generates from the inter-Korean Kaesong Industrial Complex.

      According to China's National Tourism Administration, the number of Chinese entering the North rose almost 50 percent a year since 2009 and reached 237,000 in 2012. But the number fell to less than 230,000 in 2013. The reason appears to have been a halt in group tours after Pyongyang's third nuclear test in February last year.

      The new ski resort in Masikryong and other attractions are also drawing hardly any foreign visitors.

      ◆ Tougher Conditions in 2015

      Experts forecast even tougher conditions for North Korea's economy in 2015. Falling raw material prices are expected to continue hampering the North's efforts to earn foreign currency.

      Park Hyeong-jung of Korea Institute for National Unification said, "Some 70 percent of North Korea's exports are raw materials and raw material prices have halved since 2010. Exports of raw materials will drop significantly next year."

      And persisting tensions due to the North's nuclear weapons program will continue to keep tourists away, while Pyongyang will find it increasingly difficult to send workers abroad amid increased monitoring by international human rights groups, according to experts.

      They said North Korea's food shortages could get worse due to droughts and a lack of fertilizer.

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