News Analysis: Business opportunity grows in DPRK despite challenges

Business opportunity in the Democratic People's Republic of Korea (DPRK) is growing for potential foreign investors as the closed economy is pushing a new type of socialist economy through reform and opening despite challenges such as lack of information, communication tools and transparency, global DPRK experts said Wednesday at a forum held in central Seoul.

Top DPRK leader Kim Jong Un is known to have introduced a so- called "May 30 Measures" in May 2014 to grant more autonomy in managing factories and more incentives for farmers. South Korea's Unification Ministry has said there is no clear evidence of such measures being adopted by DPRK.

Despite no official announcement from the DPRK, a few clues were found. Choson Sinbo, a pro-DPRK newspaper based in Japan, reported in January that the DPRK will "set up a collectivist system that can respond flexibly" and that "socialist enterprises will take the lead."

The new socialist economy scheme is believed to be an extension of the so-called "June 28 Measures," adopted in June 2012 and made known to outside world by Choson Sinbo. The new plan is estimated to scale down the size of farming work unit to a " family size" of 4 to 6 people, which could be allowed to leave up to 60 percent of their production on their hands. It is higher than the previous 30 percent ceiling.

Companies could be given more leeway in management, paying workers a wage in accordance with performance and handling inputs and outputs in a freer way than before. Andrei Lankov, professor at Kookmin University, said in a Nov. 30 Al-Jazeera editorial that the May 30 Measures were "revolutionary" and that the DPRK seems to have decided to begin "Chinese-style reforms."

NOT IMPOSSIBLE "Reality in North Korea (DPRK) is changing as economic reform measures are being taken," Yoon Dae-kyu, director of the Institute for Far Eastern Studies (IFES) of Kyungnam University, said during the forum. "It may be difficult to do business in North Korea, but businesses can succeed if building relationship and interacting with the North."

The IFES held the forum under the title of "Doing Business in North Korea (DPRK): Opportunities and Challenges," where more than a hundred scholars, government officials, entrepreneurs and local and foreign media reporters participated.

It is not Kim Jong Un who first seeks to incorporate market factors into the DPRK's socialist economy. Kim Jong Il, his father and late DPRK leader, launched the first sweeping economic reforms, called "July 1 Measures" in 2012 and nominated Park Pong-ju, a known economic expert in the DPRK, as premier in 2013. Park, who lost his position in April 2007 on failures of the reform drive, was renamed by Kim Jong Un as premier in 2013.

The DPRK has many skilled, cheap labor force especially in information, communications and technology (ICT) and textile industries, said Paul Tjia, founder and director of GPI Consultancy, an independent Dutch consulting firm. He said low production costs and skillful workers may provide great opportunity for doing business in the country.

ICT outsourcing to the DPRK is globally growing rapidly as the country has some 10,000 experts, according to the consultant's estimates. Since 1980s, the country has fostered ICT specialists by setting up research institutes and creating ICT faculties in universities in Pyongyang.

The highly-skilled workers are developing various programs of factory automation, business management systems and even mobile applications for foreign clients. A DPRK company is building a banking system for a Middle East client. In the past, South Korea' s Samsung Electronics ordered a DPRK company to develop embedded system for mobile devices.

DPRK workers are especially skilled in garment processing. Since 1970s, the DPRK has exported textiles to Eastern European countries, now to Germany, France and the Netherlands. For example, the DPRK's Korea Unha Trading Corporation, founded in 1976, has 70 factories and workshops and employs about 25,000 workers, producing some 450,000 sets of suits, 3 million pieces of jackets, 5 million winter clothes and 4.5 million sportswear and 1.5 million down wears every year.

The most attractive would be the Rason Special Economic Zone in the far north DPRK bordering China and Russia. Cities of Rajing and Sonbong are near the zone, where minimum wages for skilled textile workers are around 80 U.S. dollars per month.

CHALLENGES

Rason was also the first place to be given a mobile phone network along with Pyongyang in 2002. Ownership of housing is only allowed in Rason, where visitors can receive an approval from local authorities to travel freely.

But, it is an exception among 19 special economic zones dotted around the country. The rest of the zones suffer from lack of information, communications tools and transparency in law.

Collecting sufficient information on DPRK partners are not easy as the local Intranet is not visible in outside world. To build contacts, potential foreign investors need middlemen or agents mostly in China. Mobile phones owned by foreigners cannot call DPRK people as they are operating on separate networks.

Potential foreign investors cannot pay wages directly to workers as bank remittances are blocked by international sanctions, which have been increasingly imposed after the DPRK's nuclear tests in 2006, 2009 and 2013. Rules and laws on corporate contracts can change in the DPRK, but lack of transparency in policy making would discourage potential investors from investing in the country. "It is difficult for most investors to see why the DPRK is a better bet," said Andray Abrahamian, executive director of Choson Exchange, a non-profit organization that specializes in training DPRK people in business and economy. " Its advantages in natural resources and low labor costs are not compelling enough."

The expert recommended the DPRK enhance political relationship with neighbors, which can offer it the greatest sources of investment, trade and development aid, namely South Korea, Japan and China.

In the near term, the DPRK can start with "small, relatively painless steps," without a grand political breakthrough, the expert said, citing fewer restrictions on mobile phones, launch of websites on DPRK companies' information exposed to outside world and eased rules on visa. Endi