Europe and the Middle East—The fifth session of the International Leadership Conference examined the potential for a private sector economy to develop in North Korea.
From July 27 to 29, 2021, eight sessions of the ILC were held online under the title “Toward the Peaceful Reunification of the Korean Peninsula: Best Practices in Track II Diplomacy.”
The fifth session, held on July 28, was titled “The Potential of Private Sector Initiatives to Boost the North Korean Economy.”
UPF and its International Association for Peace and Economic Development organized the session, which had a total of 117 participants attending the “live” broadcast, with an additional 414 viewers on Facebook.
The session focused on the key role of private sector initiatives in providing goods and services to citizens and institutions, developing new technologies, and fostering international cooperation. Several nations from the communist bloc, such as China and Vietnam, have successfully integrated market economy principles into their socialist systems. In this regard, what is the potential for a private sector economy to develop in North Korea?
Panelists addressed the following questions: What kind of advantages would be achieved for the country? How to attract foreign investment? What government policies would be needed? What lessons can be learned from other centrally planned economies? How to stimulate entrepreneurship and prepare the public administration for such a development?
Ole Toresen, IAED vice coordinator for Europe and the Middle East, welcomed the participants and introduced the moderator of the session, Dr. Claude Béglé, the president of the investment company Symbioswiss and a former member of the Swiss Parliament. He has a PhD in economics and master’s degrees in law and international relations.
Dr. Béglé then introduced the first speaker, Paul Tjia, the founder of GPI Consultancy, a consultancy firm in the field of international outsourcing. He organizes business missions and tours to North Korea for journalists.
North Korea clearly wants foreign investments and is interested in foreign trade, Mr. Tjia said. Private businesses can play an important role in building trust between North Korea and foreign countries. As an example of possible business, he emphasized online IT-related work on behalf of foreign clients. The work can be done in North Korea and delivered to the foreign client using the Internet.
The DPRK also is developing computer games and animation for clients abroad and has a high level of ICT education (information and communications technology infrastructure and systems). Mr. Tjia mentioned that Samsung has collaborated with a North Korean software company. North Korea also produces some medical equipment as well as the software, he said.
Mr. Tjia has brought garment producers to North Korea, but currently, due to the UN security sanctions, North Korea is not allowed to export garments. Software development, which is rather complicated and needs a lot of communication, was mentioned by Mr. Tjia as important for bringing about successful results. In doing business, it is possible for people to visit North Korea, he said, but North Koreans also appreciate being invited to visit abroad.
The next panelist was Mark Tokola, the vice president of the Korea Economic Institute of America in Washington, D.C. He is a retired U.S. senior foreign service officer. Among his many postings, he has served as deputy chief of mission at the U.S. Embassy in Seoul.
For North Korea, the biggest problem is not denuclearization, but rather the terrible condition of the North Korean economy, Mr. Tokola said. Part of the problem has been the droughts and floods of recent years, and part has been the effect of international sanctions, and now North Korea’s self-imposed pandemic border controls have cut off imports, even of humanitarian assistance.
However, 30 years of economic stagnation have been primarily due to North Korea’s mismanagement of its economy, Mr. Tokola said. The little improvement that has been achieved in the lives of the population has come from modest market liberalization. North Koreans now rely more on markets than on state salaries or rations.
To get the North Korean economy on its feet, fundamental reforms are necessary in state budgeting, banking, property legislation, commercial law, and many other areas, Mr. Tokola said. Without those reforms, neither North Korean entrepreneurs nor potential foreign investors will have much incentive to risk investments. North Korea may not be willing to accept that kind of help from the United States or South Korea. Other partners, such as the UN agencies, Eastern European countries, Mongolia, or Vietnam, may be better placed to work with them on economic reform, he said.
One of the very first steps will be that North Korea will have to show its government revenues and expenditures, Mr. Tokola said. That might be difficult for a country as secretive as North Korea, but it will be necessary.
In the long term, there will need to be an economic relationship between North and South Korea, he said. They have things to offer each other. South Korea can offer know-how, financial resources, and strong connections to international markets. North Korea can offer mineral resources, a skilled labor force, an opportunity for infrastructure construction contracts, and—perhaps most important—overland access to China, Russia, and beyond.
One of the challenges will be to ensure that North Korea is not overwhelmed and destabilized by South Korea’s economic strength, which is at least 40 times greater than North Korea’s, Mr. Tokola said. Indeed, it will be essential to find means to ensure that South Korean companies do not absorb North Korea’s assets. One way to safeguard against this would be an inter-Korean agreement on competition policy to ensure that South Korean companies do not take too much advantage of their dominant position and to ensure that South Korean economic activity in North Korea benefits North Koreans.
The final panelist was Dr. Pablo Sanz Baylor, an assistant professor (PhD) in commercial law at the Spanish university ICADE and a legal expert in digital business regulation and corporate law. He was a speaker at the 2017 Legal Scholars Roundtable in Seoul, at the 2018 Trade Law Forum in Incheon, and at the 2021 Korea Law Forum, where he spoke on research and policy in technology law and digital business.
There are several existing cases of foreign businesses, mostly Chinese and Russian firms, in joint ventures with the North Korean government, Dr. Sanz said. Furthermore, there are three options for foreign companies looking to do business in North Korea:
- A foreign company and the North Korean government equally invest and have business control over a joint venture company;
- A foreign company and the North Korean government jointly invest, but the latter has control over the business;
- A foreign company owns 100 percent of its business entity in North Korea and is allowed to be set up only within special economic zones across the country.
However, North Korea does not yet have a proper environment for foreign companies to invest, he said. Indeed, it lacks laws, systems, and rules for dispute settlement, insurance, wages, and remittances. Furthermore, infrastructure—roads, railroads, and telecommunications to the supply of electricity, gas, and water—is extremely poor. The large-scale military spending and nuclear programs severely draw off resources needed for investment and civilian consumption.
Dr. Sanz asked, “Why doesn't North Korea become more like Vietnam?” In the late 1980s, Vietnam embraced free-market reforms. Vietnam’s frontier market is one of the world’s fastest-growing economies, with an expanding middle class, strong manufacturing sector and young population. Vietnam received assistance from the International Monetary Fund and the World Bank in the 1990s. It has received significant foreign investment and became a member of the World Trade Organization in 2007. Also, Vietnam is now flexible geopolitically and is building relationships. Furthermore, Vietnam has been one of the fastest-growing countries of the past 20 years.
North Korea remains closed for business, which prevents it from growing out of the world’s poorest countries. Any North Korean attempt at liberalization will depend on the progress of ongoing nuclear negotiations. The lifting of sanctions, coupled with economic reforms and changes in national security policy and international relations, could help put the North Korean economy on a path of stable growth and economic integration.
Dr. Béglé then pointed out that North Korea, Vietnam, and China are similar in that the communist party must rule, but there is one major difference between the three in terms of digitalization: North Korea has hardly access to the Internet and has no social network. In China the Internet can be found anywhere, with Google replaced by a Chinese version. In Vietnam, there is full access to the Internet and social network.
In the following discussion many issues were brought up: One way to create trust is to be transparent, e.g., how does North Korea finance its budgets? Mr. Tjia pointed out that doing business with North Korea is difficult because the United States does not allow North Korea to use the international banking system. Furthermore, Dr. Sanz said that Vietnam has been pragmatic, focusing on economic growth. Vietnam has a communist party regime, but in terms of economic system it is not communist, and Vietnam could be a good example for North Korea. However, there are big differences in terms of international relations, as Vietnam has diplomatic relations with the United States and North Korea does not.
Enrique Miguel Sanchez Motos, the IAED coordinator for Europe and the Middle East, then asked, “What would be the first step to introduce the private initiative and private property?” Mr. Tjia replied that it should be made clear to European businesses what the possibilities in North Korea are, while North Korea should promote its business possibilities to the outside world. He also would encourage another webinar to discuss the actual business possibilities. Next would be to see if small greenhouse projects are possible in North Korea.
Dr. Béglé reflected upon how North Korea could open. From his conversations with North Korean officials and businessmen, he understood that they are looking at models like Vietnam and Mongolia. Tourism is one area – it is unbelievable how much North Korea has invested in the eastern part with hotels and airport. Agriculture and food processing are another sector to invest in, as well as light industry (e.g., shoe factories).
Dr. Sanz thought that North Korea should be more pragmatic. We are now in the context of the fourth industrial revolution, he said, and the economy will require more cooperation and integration on the international level. North Korea’s financial resources are now wasted on military spending, he said. North Korea needs to provide information to the World Bank; this will increase the trust of international investors.
Mr. Tokola said that North Korea is a member of the United Nations’ Economic and Social Commission for Asia and the Pacific (ESCAP) and has asked the commission for help with commercial laws, etc. In this sense, UN agencies could do more to help North Korea through behind-the-scenes discussions.
