Feeling adventurous with your money? North Korea wants your investment

North Koreans want your money and have released a promotional video touting for investment in their special economic zones. Photo: AFP.

When it comes to untapped markets, there are very few places left in the world that haven't yet been touched by global capitalism.

Newly opened Myanmar is getting a KFC, and it's probably just a matter of time until you can order a skinny caramel frappuccino at Havana airport.

But for Indiana Jones investors out there, never fear. There's still the cash-strapped, heavily sanctioned pariah state of North Korea.

And the North Koreans want your money.

As evidence, they've just released a promotional video touting for investment in their special economic zones - or, as the video's translation puts it, "peculiar" economic zones.

Released by the "Voice of Korea" - North Korea's answer to "Voice of America" - the video features the electronic music, flashing lights and low-tech graphics of a Pyongyang karaoke room.

The video, released at the weekend, is an edited version of an investment pitch first published in 2013.

"The government of the Democratic People's Republic of Korea makes efforts to establish and develop unique economic development zones so as to develop the economy of the country and improve the material and cultural life of the people," the subtitles read, against a shot of a statue of Chollima, the mythical Korean Pegasus.

Legend has it that Chollima was so fast it could cover hundreds of miles a day, leading Kim Il Sung, the founding president of North Korea, to purloin the idea to encourage his people to work hard - at "Chollima speed" - to rebuild the devastated country after the Korean war.

The video goes on to mention all the usual considerations of foreign investors, like the legal framework - even showing a copy of the Constitution, something that seems to count for little in everyday North Korean life.

"We have laws related to the special economic zones," Hong Chol Hwa, Director of the Law Institute under the Academy of Social Sciences, says in the video.

"We have laid a legal foundation to ensure the legitimate rights and interests of foreign investors through the rules for the enforcement of the laws."

Just as investors like legal certainty, they tend to detest taxes. "The tax policy interests all businessmen," the video continues, showing a photo of the tax regime written in Korean, detailing income tax, transaction tax and resources taxes.

"They are less than the kinds of taxes levied in other countries and the tax rates are very low," the video says.

Gross profit tax is 14 per cent, but 10 per cent in "encouraged" sectors.

"The special economic zones of the DPRK are attracting the world's attention," the video says, showing fish processing, heavy machinery like dump trucks, and a few happy Western tourists.

It is true that North Korea's SEZs are attracting some attention. It's one of the few parts of the economy where there does seem to be some movement.

Kim Jong Un, who took over the leadership of North Korea from his father at the end of 2011, has made "byungjin" his top priority - the idea that North Korea can pursue economic growth and nuclear weapons at the same time.

He's at least been giving the appearance of progress on the military front - he recently claimed North Korea launched a submarine ballistic missile and had been able to miniaturize nuclear warheads, though there is scepticism about the former claim in particular.

But he's also overseen a slew of economic policy experiments, including freeing up farmers to sell more of their crops and creating more than a dozen SEZs. So far, almost all the action there has been Chinese.

"These zones, with a variety of intended functions and ostensibly foreign-friendly regulations, signal a willingness to explore policy options, yet also clearly illustrate the development challenges that the DPRK continues to both face and perpetuate," Andray Abrahamian wrote in a report for the U.S.-Korea Institute at SAIS published late last year.

As part of Choson Exchange, a business training program, Abrahamian has visited several of North Korea's special economic zones.

"While most of these zones will languish as underfunded and underconnected, a handful will be positioned to attract moderate investment should North Korea's relations with neighbouring countries improve," he wrote in the report.

"Moreover, they will open up spaces in which further policy experiments can take place, perhaps including rules on internet access, ownership rights or immigration procedures."

North Korea has also been holding trade fairs like one focused on commodities in Dandong, the Chinese border city last year, and the Pyongyang international trade fair last month.

North Korea has a chequered history when it comes to SEZs.

Kim Jong Un has made "byungjin" his top priority - the idea that North Korea can pursue economic growth and nuclear weapons at the same time. Photo: AFP.

Rason, the abbreviation for Rajin-Sonbong, was first established as a free trade zone in 1991, modelled on China's Shenzen, but has languished.

The Kaesong industrial park, an inter-Korean project where North Koreans work in South Korean-run factories on the northern side of the border, has been plagued with problems, most recently involving a wage dispute.

But in the video, North Korea highlights the zones that many outside analysts consider most viable - the Rason zone on the border where Russia and China meet North Korea, two zones at the southernmost point along the border with China, and another at Sinuiju, directly across the river on the North Korean side. There's also, as the video puts it, the "Unjong Cutting Edge Technology Development Zone" in Pyongyang.

"Development zones have been selected in the favourable regions of the provinces so as to further develop the economy of the country," Ri Chol Sok, chairman of the State Economic Development Committee, says in the video.

Not included in the video: International sanctions that make it incredibly difficult to move money in and out of North Korea, assuming that the North Koreans are willing to let investors take out any profits.

Orascom, the Egyptian telecom company that started North Korea's mobile phone network, apparently froze investment in the country because of its inability to repatriate profits.

Also not mentioned is the fact that the two large zones on the border have been frozen because of tensions with China resulting from Kim Jong Un's decision to execute his uncle Jang Song Taek, who was a main conduit for business dealings with China.

And another thing missing: Electricity is generally considered a desirable commodity, no matter what business you're in. But reports coming out of North Korea, which is overwhelmingly dependent on hydro-power, suggest that after a dry winter, power cuts are even worse than usual, even in the capital.

But despite the video's dubious production values and the apparent folly of putting your money into a place where most "consumers" endure severe repression and struggle to feed their families, there are some reasons to think that North Korea's pitch might attract some interest.

Ruediger Frank, a German expert on the North Korean economy who studied in Pyongyang for a semester and visited the Rason zone late last year, called the level of commerce there "simply mind-boggling."

In a paper for 38 North, he described seeing markets where unlicensed stalls sell cigarettes; fruit vendors offering imported pineapples, bananas and grapes; and a regular bank that exchanges money at the "black market rate" rather than the official state rate.

Meanwhile, Adam Cathcart, who teaches at the University of Leeds in England, has been keeping an eye on the zones along the Chinese border near Dandong.

China appears to be going along with North Korea's new SEZ strategy in the border region in a reluctant bid to remain engaged with its errant client state, he wrote in a paper last year, after Jang's execution.

"Chinese hopes for reform in North Korea are not so much rooted in a desire for Kim Jong-un to start things, but for Kim Jong-un to merely follow through on positive initiatives which had begun in 2010, or, in some cases, 2002," Cathcart wrote.

China has pumped about $354 million into building a huge new bridge between the zone and North Korea - but North Korea has so far refused to build a road connecting the bridge to its roads, apparently expecting China to build that too.

Laws updated in 2013, attempting to encourage investment into these SEZs, allow foreigners a 50-year land lease period as well as "the right to buy, sell re-lease, donate or inherit the land use right and building ownership."

But, as with previous laws, there are what Abrahamian calls "troubling ambiguities."
Perhaps the most striking is Article 7: "The State shall not nationalize or expropriate the property of the investors.

Where an investor's property is, under unavoidable circumstances, to be expropriated or used temporarily for public interest, notification thereof shall be made in advance and sufficient compensation commensurate with its value shall be made in good time."

Or to put it another way: We won't take your property unless we say we have to, and then we will decide to perhaps pay you something for it, at some point.

This is, frankly speaking, unappealing to investors.

Still, for the financially adventurous, there are opportunities in North Korea.

"North Korea used to be called the most isolated country in the world. Not any more," said Paul Tjia, a Dutchman who outsources clothing production for European companies to North Korean factories.

At a conference in South Korea devoted to investing in the North, Tjia showed photos from inside the factories and said that North Korea's seamstresses were world class, and their orders were delivered on time.

Or, as the famously bullish American investor Jim Rogers puts it: "If I could put all of my money into North Korea, I would. Massive changes are taking place there."

That might be an over-statement, but for some people, the prospect of breaching this final financial frontier is alluring. And for Kim Jong Un, that means one thing: cha-ching.