North Korea, a Trouble Maker or a New Investment Opportunity?

An American investor Jim Rogers predicts North Korea will be the next land of opportunities once the economy is open for investment. He compared current North Korean economy with that of China in 1980s. Also the fact that Kim Jong-un had been exposed to a capital market system and its advantages while he was studying in Switzerland enhances the possibility of capitalist system phasing in the national economic system. In fact there are some real changes already made in North Korea such as the permission of partial property rights for farmers of Jang Chon, a model collective farm. The products that exceed the state quota are distributed to farmers, and this worked as an incentive increasing the total output by 15%.

Construction industry would be one of the leading sectors of economic growth in North Korea after opening up its market for foreign investments. The road system is estimated to be between 20,000 to 31,200 km, which is significantly short compared to South Korea’s 257,913km (data from Korea Expressway Corporation in 2015), and only 10% of it is paved. 22 out of 49 airports have paved runways, it has 12 ports mostly only for small ships. Analysts in Citi estimates the rebuilding cost of transportation and energy plants will be $63 billion, and far more for expansion of infrastructures. Also, according to 2013 data of Bloomberg, mineral resources buried in North Korea are estimated to be worth up to $6 trillion.

However, there are some barriers that overshadow the rosy future of North Korean economy.

  1. Denuclearization Agreement

The international community has struggled to compromise upon North Korea’s nuclear weapon and ballistic missiles. In 2018, starting from a discussion on North Korea’s participation in Olympics that was held in South Korea, the two nations’ leaders had a summit in the following April, which declared a common goal of denuclearizing the Korean peninsula. There had been two talks regarding the procedures of denuclearization in Singapore and Hanoi, but North Korea and US could not bridge the differences. North Korea insisted upon phased and synchronized denuclearization while US rejected to lift the sanction until it completely denuclearized.

  1. Despotic Regime

North Korea is different from any other communist nations, as it is ruled by one family. While China was ruled by one party, it still had room for changes with different factions rising when facing economic difficulties of the country. As North Korea is under control of one person, his first and non-comparable of goal is maintaining his regime. Children in North Korea are brainwashed, and the leader is deified. 40% of GDP is used for national defense and just like his father and grandfather, Kim Jong-un unleashed the reign of terror, depending much on the military power. Although North Korea established Special Economic Zones such as Rason and Kasung, foreign investments are limited even for South Koreans, while China welcomed investments from overseas Chinese by deregulation and special acts. When accepting capitalism, the role of market can be increased, reducing political power of Kim Jong-un. It is up to how much he is willing to give up his control power.

Currently, as there is no tangible progress made in talks with US regarding the sanctions, North Korea is seeking alternatives, resuming summits with Russia. On April 10th, in the national conference, Kim Jong-un said, “We need to strike a blow to the hostile forces that miscalculate we would succumb to such sanctions.”

Written by Ahrim Kim