Entrepreneurs Weigh a Return to North Korea

Via The Wall Street Journal, a look at how South Korean businesses that once invested in Kaesong look cautiously across the border again:

South Korean businesses poured millions of dollars into North Korea a decade ago, only to see their bets sour and Pyongyang confiscate their assets when political relations later deteriorated.

As ties warm once again and the two sides revive joint economic plans, some of those same pioneering investors are cautiously contemplating a return to North Korea.

Many are smaller-scale entrepreneurs involved in manufacturing textiles and household goods. Starting in 2004, lured by political optimism and the promise of pay dirt, more than 100 such operations set up shop at an inter-Korean business park just north of the countries’ shared border. At its height, South Korean firms employed some 50,000 North Koreans at the Kaesong Industrial Complex.

That all ended in early 2016, when the South pulled out of Kaesong in response to North Korea’s weapons development. The North put the facility under military control and seized the South Korean companies’ property.

While foreign firms and investors have begun eyeing a foray into North Korea amid the current detente—and President Trump and Secretary of State Mike Pompeo have talked about potential investments from U.S. companies—South Korean businessmen like Im Ki-eun actually know what it is like.

“Few places were better than Kaesong for my business,” said Mr. Im, who ran a clothing factory there for eight years from 2008. Cheap and skilled labor allowed his Changjin Apparel Co. to turn a “pretty decent” profit.

North Korean workers at Mr. Im’s factory were paid $160 a month, including social-welfare allowances, he said—a fraction of the average monthly South Korean salary, which today stands at $2,900.

“I do want to go back there for business,” he said.

Under South Korean President Moon Jae-in, Seoul has begun talking up joint economic projects with the North.

On Nov. 15, roughly 100 ethnic Korean entrepreneurs living abroad traveled to North Korea for a conference on business opportunities and for meetings with Pyongyang officials.

South Korean officials wary of violating sanctions haven’t formally proposed reopening the joint business park, but expectations are building. The idea is being openly discussed at public-policy forums in Seoul. More broadly, corporate giants such as Samsung C&T Corp ., the de facto holding company of South Korea’s biggest and best-known conglomerate, have created North Korea task forces to evaluate opportunities.

Meanwhile, Mr. Moon has been traveling the world making the case for a potential easing of restrictions on North Korea. On Saturday, South Korea said the United Nations Security Council had granted a sanctions exemption to allow a survey of North Korean railroads, a possible prelude to connecting their networks.

While the original Kaesong project became the primary showcase of a unified Korea’s economic potential, the marriage of South Korean capital with cheap North Korean labor angered conservatives, who complained about the workers’ wages being paid directly to the North Korean government.

The industrial park earned Pyongyang $120 million in 2015—its final full year before its closure—and a total of $560 million overall in the form of workers’ wages, according to figures supplied by South Korea’s Unification Ministry.

The Seoul government justified the closure at the time by saying that the money was directly funding the North’s nuclear and missile programs. The Moon administration has reversed that conclusion.

Although many entrepreneurs in the South say they would gladly give North Korea another go, others express reservations about the sustainability of the diplomatic process. But even some who were burned say they are open to resuming business in North Korea.

Yoo Chang-geun, chairman of SJ Tech Co., a manufacturer of mechanical parts that formerly operated in Kaesong, said “the bleeding was huge” when his operation was forced to close in 2016.

“Little did I dream of my business shutting down in Kaesong,” said Mr. Yoo, who had shifted production facilities there from China, making the involuntary exit especially painful.

Despite the bitter experience, Mr. Yoo said he was interested in returning to Kaesong, though he first wanted to ensure that the situation is more stable before making a final decision. He said he believed Kaesong could be a model for North-South engagement.

“A shock absorber is one of my flagship products,” he said. “The Kaesong industrial park can be something like that, cushioning inter-Korean conflicts and turning them to peace through business cooperation.”

For now, sanctions remain a barrier. The Trump administration has tightened pressure on North Korea in recent weeks, including by blocking U.S. humanitarian aid workers from traveling there.

“Even a toothpick cannot be brought into North Korea if it’s on the sanctions list,” said a senior Seoul official. Toothpicks aren’t on the list.

Control Risks, a risk consulting firm, warned clients last month that despite the diplomacy, “business dealings with North Korea—even indirect ones—generally involve very severe risks.”

During an earlier wave of inter-Korean diplomacy between 1998 and 2008, an arm of the Hyundai conglomerate operated a tourist resort at North Korea’s Mount Kumgang scenic area, close to the border on the east side of the Korean Peninsula. The resort was closed by a conservative Seoul administration in 2008 after a South Korean tourist was shot by a North Korean guard.

On Nov. 19, a top official from Hyundai Asan Co., an arm of Hyundai Group investing in North Korea, returned from a visit to the site predicting that the tourist zone could be reopened in the near future.

The Kaesong complex, if it is to succeed, must be made less vulnerable to geopolitical risks to protect potential investors, said Cho Bong-hyun, a senior North Korean economy expert and deputy head of Seoul-based IBK Economic Research Institute.

One way, Mr. Cho says, is to “internationalize” the project by bringing in Chinese, U.S. or Russian businesses. If they were to invest, Mr. Cho said, “neither of the two Koreas would be able to shut it down unilaterally.”

This entry was posted on Sunday, December 2nd, 2018 at 8:14 am and is filed under North Korea.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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