N. Korea: Busi­ness po­ten­tial, peril

Clo­sure of joint in­dus­trial park shows stark re­al­ity

South Florida Sun-Sentinel (Sunday) - - Money - By Vic­to­ria Kim

SEOUL, South Korea — When an in­dus­trial park jointly run by the two Koreas was abruptly shut­tered by South Korea’s gov­ern­ment three years ago, the South Korean fac­tory own­ers were so caught off guard that one of them left be­hind his wed­ding ring. An­other was un­able to re­trieve a photo of his late mother.

A third busi­ness owner, Yoo Chang-geun, still has a closet full of clothes and $17 mil­lion worth of fac­tory equip­ment at the Kaesong In­dus­trial Com­plex, 6 miles north of the heav­ily for­ti­fied De­mil­i­ta­rized Zone mark­ing the bor­der be­tween the Koreas. Yoo, 62, chief ex­ec­u­tive of an auto parts and in­for­ma­tion tech­nol­ogy equip­ment man­u­fac­turer, is one of about 120 South Korean busi­ness own­ers who ran fac­to­ries at Kaesong at the time of the Fe­bru­ary 2016 clo­sure.

When the joint ven­ture be­gan in 2002, Kaesong was aimed at show­cas­ing North Korea’s eco­nomic po­ten­tial. Mar­ry­ing South Korea’s tech­nol­ogy and busi­ness acu­men with North Korea’s low-cost la­bor, it was also viewed as a diplo­matic tool to ease the iso­lated na­tion into con­nec­tions with the out­side world and pave the way for ad­di­tional in­vest­ments.

But since its clo­sure in re­tal­i­a­tion for North Korean nu­clear test­ing, it has served more as a cau­tion­ary tale about the po­ten­tial pit­falls of in­vest­ing in North Korea. The in­dus­trial park’s fate re­mains sus­pended in geopo­lit­i­cal limbo, any hope of re­sump­tion blocked by the in­ter­na­tional sanc­tions im­posed on North Korea for its nu­clear tests.

As busi­ness own­ers have waited for Kaesong to re­open, some of their com­pa­nies have gone bank­rupt. Oth­ers have re­lo­cated to Viet­nam. One shoe man­u­fac­turer, who put his busi­ness on hold, died last year.

“It’s been an­tic­i­pa­tion, then dis­ap­point­ment, an­tic­i­pa­tion, then dis­ap­point­ment,” Yoo said. “We’re hang­ing onto the tail end of our hope.”

Many of the ex­ec­u­tives thought that when Pres­i­dent Don­ald Trump and North Korea’s Kim Jong Un met in Hanoi last month, there would be at least a par­tial eas­ing of sanc­tions, clear­ing the way for their busi­nesses to ac­cess the dis­re­pair, if not re­sume op­er­a­tions, at the site.

Trump him­self has re­peat­edly touted North Korea’s eco­nomic prospects.

The no-deal sum­mit was a let­down not only for the fac­tory own­ers at Kaesong, but also for other po­ten­tial in­vestors in South Korea and else­where eye­ing op­por­tu­ni­ties to make in­roads into North Korea.

One of Asia’s last all-bu­tun­tapped mar­kets, North Korea has an­ti­quated rail­ways and high­ways and an out-of-date power grid in crit­i­cal need of up­dat­ing and ex­pan­sion.

In re­cent years, the North Korean gov­ern­ment has put out a largely un­heeded call for for­eign in­vest­ment, promis­ing hand­some re­turns.

Sin­ga­pore-based Amer­i­can in­vestor Jim Rogers, famed for co-found­ing the Quan­tum Fund with Ge­orge Soros, has said in nu­mer­ous me­dia in­ter­views that he wants to in­vest in North Korea. He said in a South Korean tele­vi­sion in­ter­view in Jan­uary that he be­lieves North Korea will be “the most ex­cit­ing coun­try in the world for the next decade or two” for in­vestors.

“Most South Korean cor­po­ra­tions were mak­ing prepa­ra­tions in­ter­nally in an­tic­i­pa­tion of sanc­tions be­ing re­laxed,” said Lim Hyung-sub, an at­tor­ney for the Seoul firm Lee & Ko spe­cial­iz­ing in po­ten­tial eco­nomic col­lab­o­ra­tions with North Korea. “A lot of peo­ple ex­pected at least a small deal.”

Lim said any­one look­ing to do busi­ness in North Korea needs to be wary of the fact that the coun­try’s le­gal sys­tem is not up to par re­gard­ing prop­erty rights or in­vest­ment guar­an­tees.

“My con­cern is there will be such a rush and en­thu­si­asm, that peo­ple won’t take sanc­tions se­ri­ously enough,” said Michael Hay, a British French at­tor­ney who main­tained a le­gal of­fice in Py­ongyang for 12 years ad­vis­ing busi­nesses be­fore sus­pend­ing op­er­a­tions in 2016 due to sanc­tions.

Hay said he saw the busi­ness en­vi­ron­ment ebb and flow with the news head­lines over the decade he worked in North Korea, and he re­mains up­beat about the coun­try’s po­ten­tial.

Yoo was among the first to set up shop at Kaesong in 2004. “I was draw­ing on a blank can­vas, walk­ing Robert Frost’s ‘road less trav­eled,’ ” he re­called.

He spent three years train­ing the work­force pro­vided by North Korea, mostly cit­i­zens of nearby Kaesong, many of whom had to learn to type. They were quick learn­ers, he said. Even­tu­ally, 400 North Korean em­ploy­ees worked for him, pro­vid­ing IT ser­vices to other com­pa­nies at Kaesong that were man­u­fac­tur­ing auto parts and work­ing in re­search and de­vel­op­ment.

The po­lit­i­cal risk came with fi­nan­cial ben­e­fits — the North Korean work­ers’ wages started at $50 a month, about one-tenth the min­i­mum wage in South Korea in 2004, to be in­creased by not more than 5 per­cent an­nu­ally, ac­cord­ing to Yoo. By the end, he was pay­ing his work­ers $180 a month.

At the peak, about one­fifth of the rev­enue for his com­pany, SJ Tech, came from the North Korea busi­ness, he said.

The North Korean gov­ern­ment pe­ri­od­i­cally held the in­dus­trial park hostage to re­tal­i­ate for per­ceived provo­ca­tions, cut­ting off ac­cess in 2009, and pulling its work­ers for six months in 2013 af­ter joint mil­i­tary ex­er­cises be­tween the U.S. and South Korea. Af­ter each hic­cup, the Koreas would find a way to mend re­la­tions, and op­er­a­tions re­sumed.

Then in early 2016, North Korea det­o­nated what it claimed was a hy­dro­gen bomb, mark­ing its fourth nu­clear test, and launched a rocket us­ing the same tech­nol­ogy as for bal­lis­tic mis­siles.

Dur­ing the Lu­nar New Year hol­i­day in Fe­bru­ary, while most of the South Korean fac­tory own­ers and man­agers were away cel­e­brat­ing with their fam­i­lies, the South Korean gov­ern­ment abruptly an­nounced it was shut­ting down Kaesong. It was the first time South Korea had pulled the plug.

Even so, Yoo said he still held out hope that Kaesong could be the first suc­cess story for in­vest­ments in North Korea’s econ­omy.

He said, “If U.S.-North Korea re­la­tions im­prove, it could be a new dawn.”


A vil­lage along the Yalu­jiang River in North Korea. Busi­ness in­vest­ment in the re­source-rich coun­try is no easy task.

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