A Capitalist in North Korea

by Felix Abt

  To the right, the so-called “reform-minded” prime minister Pak Pong Ju visits our exhibition booth at the Pyongyang Trade Fair. I did not care about how pundits and the media labeled him. The important point is that he took a genuine interest in our projects.

  Borderless cyber space made it possible: An email I sent from Pyongyang to South Korea which ignored the DMZ and Korea’s ruthless division.

  There are other signs that this country is on the road to reform, at least in its infrastructure. In this country that was cut off from the hyper-wired south, I managed to get an uncensored internet connection in Pyongyang and exchanged e-mails with South Koreans. To learn more about IT opportunities, I wrote to my friend Park Chan-Mo, who was then the president of South Korea’s leading Science and Technology University, Postech.

  For the previous few years, Chan-Mo had been traveling repeatedly to Pyongyang to train IT engineers. He also introduced three-dimensional animation studio at PIC (Pyongyang Informatics Center), which was at the time ahead of other IT companies in its expertise, business savvy and skills. I appreciated his advice; we were negotiating the set-up of the first IT JV called Nosotek, Number One Software Technology Company. Chan-Mo was also a driving force behind the later established Pyongyang University of Science and Technology (PUST), where he became the chancellor after retiring from Postech. Prof. Park Chan-Mo displayed the above mail from Pyongyang during a slide-show presentation in South Korea.

  When I first arrived in Pyongyang, however, my company had not yet secured full internet access at its offices. Rather, we found an email function operated by the North Korean Telecom Company, operated via a server based in China. The price was steep. Each email cost at least 1 Euro and, according to the size of the attachment, could leap up to several Euros, which was the currency we used.

  To use internet, I went to a cyber-café operated by a state agency, which offered an uncensored connection. North Koreans also used the internet there, and thus were not completely closed off from the information superhighway. Every session, though, cost me several Euros. Later, in 2004, the World Food Program installed several PCs with free satellite internet access on its premises, geared towards the expatriate community.

  That proved to be a strategic move for raising their profile in the country. The internet office was suddenly transformed into a prime meeting point for expatriates, and the lines would get quite long. Later, a German entrepreneur set up internet services together with the Telecom company, which I used at my office and at home. Unfortunately, the Telecom and its German partners lobbied very hard to maintain their internet monopoly. Foreign invested businesses could not install their own satellite dishes and operate a more cost-effective internet.

  The government did not give us the license to set up our own satellite dish. The cost of a satellite dish from China would have cost us less than $8,000, an investment easily re-paid after just a few months thanks to substantial cost savings. Embassies were allowed to set up their own satellite dishes, along with a few NGOs that subscribed to a Chinese internet service provider. Foreign companies, however, were not allowed to have their own connection due to this lobbying. The monopoly, however, did not protect the German company from going bankrupt, which happened after I left Pyongyang.

  A young marketing assistant at the PyongSu Pharma J.V. Company presented this marketing analysis to the management team and the sales crew. From my arrival I stressed the importance of the strategies we’d use, and how to implement them. It was a rigorous effort that, at times, overwhelmed the North Korean staff who were more familiar with a centrally planned economy. The assistant, a young man, prepared his Powerpoint presentation, part of which is pictured above. The presentation was a feat in this nascent market, and was even Juche-like, doing it all on his own!

  Business strategy, business plan, marketing, human resources management? What the heck is that? Most North Korean business managers have never heard these terms. With the arrival of the Pyongyang Business School, that changed. All seminars were published and widely distributed. They reached numerous corporate executives, but also government officials throughout the country. The photo shows Dr. Heinz Suehlmann, member of the executive committee and director human resources at BASF Asia, the world’s largest chemical company. He chats during a seminar on human resources management at the Pyongyang Business School.

  Engagement through trade is the best way forward. North Korea showed readiness to open up its markets for foreign trade, like when it established two annual international trade fairs in Pyongyang. But the U.S. government did its best to prevent any progress by showering North Korea with “sanctions” and embargoes.

  The picture shows the opening ceremony of an International Trade Fair, with the deputy prime minister in charge of the economy, and a roster of other North Korean dignitaries. Pictured 3rd from the right is the Russian ambassador, and 6th from the right is the Chinese ambassador to the DPRK, along a handful of diplomats. As President of the European Business Association, I was the only Western businessman invited to join these VIPs.

  I have been interviewed repeatedly by North Korean media, including the Korean Workers’ Party central organ and the state council’s newspaper. In an interview I was asked the standard question of what I thought about (North) Korea and the Koreans.

  I said good things, of course, such as that Korea was a beautiful country with similarities with my native country, Switzerland, and that its people were intelligent, well educated, disciplined and hard working. But then I possibly made a small gaffe. As Kim Jong Il had just returned from a visit to China where he visited industrial parks and top-notch Chinese enterprises, I added: “I am convinced that Korea under the wise leadership of Kim Jong Il will become a strong and prosperous nation like China which he has just visited.”

  While the journalists themselves adorned my remarks about their homeland, any allusion to China was dropped. After all, the Chinese communist party had carried out reforms. But newspapers in the DPRK still suspected reforms could end up being a capitalist trap. Party cadres privately told me they did not consider China to be a socialist country any longer; some praised the country’s development, while others truly believed the party line that was more suspicious.

  In addition to industrial shifts, changes also took place for consumers. A bank in Pyongyang, for one, started issuing payment cards, almost like rudimentary ATM cards, which could be used at shops and restaurants. I was proud that the director of the innovative bank was a student of the Pyongyang Business School.

  Currently, two banks are competing for the attention of shops and restaurants to take on their payment systems installed. Bank cash cards are widely accepted now. All pharmacies of PyongSu, for example, have installed the bank cash card facilities, which are increasingly popular among its customers. Even at the Pyongyang metro, passengers “tape in” to a metro station using an electronically chipped payment cards—similar to the card systems used in subways around the world.

  The photograph above shows my North Korean bank payment card, the size of my MasterCard. Credit cards, however, could not be used in North Korea: the country was boycotted by credit card companies and international banks.

  Another first: British business consultant R.B., based in Beijing and a member of the European Business Association in Pyongyang, organized the first Business Golf Challenge at a popular course in Pyongyang. He’s not pictured with this delegation of China-based expatriates and corporate executives, who he brought to Pyongyang for an informal tournament. But the plan, unfortunately, led to a bad situation. The laws of the DPRK prohibit journalists and photographers from traveling on tourist visas. An undercover journalist posing as businessman joined the tour, which put the organizer out of business. No second Business Golf Challenge could take place.

  A Republican businesswoman in North Korea

  On September 8, 2004, The Los Angeles Times correspondent Barbara Demick wrote a whimsical story:

  At a glance, Julie Sa woul
d seem a most unlikely candidate to become the economic czar of a special development zone in North Korea. She is not only a U.S. citizen but also an avid churchgoer and registered Republican – hardly the type usually praised by the arch-communist regime in Pyongyang, the North Korean capital. Although Chinese by ethnicity, she was born and educated in South Korea, which technically is still in a state of war with the North.

  Julie Sa, whose full name is Shia Xi Riang, is the daughter of a Chinese emigrant. She built up a fast food restaurant chain in Orange County, California that later went bankrupt. She was then elected mayor of Fullerton, California, but that didn’t last long.

  Tapping into the wealth she had built up, she moved into property development and engaged in trade with China out of Dandong, the trading hub at the North Korean border.

  I met Ms. Sa in this entrepot, where we discussed the conditions that needed to be created to renovate Sinuju, the North Korean city directly across the border, an attractive place for foreign investors. Ms. Sa had submitted a $20 billion plan to North Korea’s leadership to basically rebuild Sinju from scratch, with a complete modern infrastructure.

  Julie thought that Kim Jong Il was highly intelligent, and that he realized the need for change. She went on to predict that North Korea, if given the right circumstances, could achieve in only a few years what China did in 20 years, although she didn’t explain how she came to the conclusion. She told me that she and the North Korean side agreed on more than 70% and if they could come to an agreement on the remaining 30%, she would be ready to run the Sinuiju free trade zone.

  Unfortunately, her grandiose plan didn’t come to fruition. First of all, her predecessor, the tycoon Yan Bing was appointed governor of the Sinuju autonomous zone, and then was quickly imprisoned for 18 years in China after being convicted over his financial irregularities. With a bad backdrop like that, the project looked too ambitious. My inkling turned out to be on the mark; no agreement was ever reached between Ms. Sa and North Korea.

  Since then, the project has been pretty much over with, although there’s a possibility it could be launched again. But the DPRK has moved onto its other big free trade zone in Rason Sonbong. Of course, that too faced difficulty in getting off the ground, has been given a renewed push in the right direction. After all, the Rason special zone, described elsewhere, was much more attractive to foreign investors.

  Julie Sa had a remarkable and paradoxical American career, from the conservative mayor of an American city to governor in North Korea! I met Sa, a wealthy Chinese-American business woman, and a former Republican mayor of Fullerton, California, at the Chinese border town Dandong. That was her base for managing trade activities with North Korea. She was then about to negotiate an agreement with the North Korean leadership on the development of the Sinuju Free Tree Zone, an area where she was to be appointed governor. The project never went forward as planned. It seemed to me she was not interested any longer in a political career back home, either.

  At an MoU signing, the Vice Chairman of North Korea’s Chamber of Commerce, Ri Song Un, shakes hands with me to mark closer cooperation between European and North Korean enterprises, and to tap into more business opportunities for both European and North Korean businesses.

  The DPRK Chamber of Commerce was founded on August 25, 2004. Its predecessor, the Pyongyang Chamber of Commerce had been inaugurated on March 1, 2000 and became an associate member of the International Chamber of Commerce (ICC), headquartered in Paris, France, in May 2000. The ICC is the world’s largest, most representative business organization.

  A year later, ten resident foreign businesspeople and I started the European Business Association (EBA) in Pyongyang. Our plan was to represent European and Russian business interests in the DPRK. The project evolved into a de-facto European Chamber of Commerce and the first foreign chamber of commerce – something that would never have been tolerated on North Korean soil in the erstwhile days of food shortages. I later learned that my intention to set up a European Chamber of Commerce accelerated their plan to transform the Pyongyang Chamber of Commerce into a national commerce lobby.

  Ro Tu Chol was (and still is) North Korea’s Vice Prime Minister in charge of the economy. He is also chairman of the powerful State Planning Committee that set the goals for the planned state economy, and is an alternate member of the Political Bureau of the Central Committee of the Workers Party. That’s the country’s highest authority. In short, he’s a powerful individual who opened his ears to suggestions on changing investment conditions, as is pictured above.

  As an EBA leader, it was my job to advise North Korean policy makers to strengthen their laws so foreign investors felt protected. Such a move would also improve the country’s international reputation, turning it into competitive investment destination like Vietnam or China. Besides, when too many foreign ventures fail, investors are discouraged from entering the North Korean market. As I developed a relationship with them, I noticed they listed more carefully over the years—and even promised to take action towards our desired direction. And indeed, in the mid-2000s, a number of laws and regulations were amended in favor of foreign investors. For one, we had our taxes lowered, and we also had electricity and water costs lowered for foreign-invested factories.

  Backtracking

  After a meeting in early 2005 with one of North Korea’s largest business groups, the vice chairman walked me to my car and lowered his voice. “Lengthy discussions on the course of the economy took place at higher echelons of our party in the recent past,” he whispered, “and the old conservative guard asserted itself this time. Business people just need to be more patient now.” Obviously, he was aware that there was a period to come that would make business life tougher for everybody. But he was optimistic that this was a passing phase: the course of the economy was, surely and predictably, going to change again later. And the change was set in motion, after the “old guard” became too zealous in its ruinous currency reform.

  It is an enigma as to why exactly the party’s “old guard” has so fervently resisted reforms for a remarkable three decades, while Vietnam and China have opened at the behest of their communist-capitalist policy makers. In Vietnam, though, the political scientist Ben Kerkvliet has shown how pressure from villagers and farmers pushed the party onto the path of reform, after food shortages in the early 1980s. If this is the case, change in North Korea will not be administered top down, but will need to come from the bottom to be subsequently accepted by the party.

  In the mid- to long-term, the DPRK cannot survive without true economic reforms, and the party knows this. If it refuses them, it will collapse as badly as the socialist countries in Eastern Europe did two decades earlier. General Colin Powell, the former U.S. Secretary of State, gave credence to this mindset when he said the North Korean leadership is not suicidal. For this reason, it will eventually embrace reforms as a way of self-preservation, even if it faces risks. After all, whoever will lead the country in the future will be aware that the legitimacy of the one-party rule cannot be drawn primarily from a strong military defense against a declining enemy, the US.

  But before a substantial transformation and a true divulgence take place, the international community will have to agree on some conditions. Skeptical North Korea experts, such as Leonid Petrov at the University of Sydney, pointed out in an online forum. “North Korea won’t change nor will it follow Vietnam or China’s examples without U.S. diplomatic recognition, solid security assurance, and fair economic treatment. But Washington does not need a reformed North Korea - instead the Americans and Lee Myung Bak (South Korea’s hardline president until 2013; the author) expect Pyongyang to surrender unconditionally.”

  He went on. “While cornered, North Korea remains consolidated ideologically with no room for domestic dissent or unrest. Confrontation will continue indefinitely until someone (either in DPRK elite or in U.S. administration) decides to interrupt this vicious circle and change the paradigm of relations.”

  It�
��s a dream that hasn’t been quite realized, but I remain optimistic. If the New York Philharmonic could be so well received in North Korea, then I place my hope in the coming winds of change.

  For more information, visit:

  www.a-capitalist-in-north-korea.com

  Table of Contents

  Copyright

  A Capitalist in North Korea

  About This Book

  Praise for A Capitalist in North Korea

  About the Author

  Praise for Felix Abt

  Preface: On the Verge of Glasnost?

  PART I

  Chapter 1: Into the Heart of Darkness

  Chapter 2: Malaise into Opportunity

  Chapter 3: Look to the Party, Young Revolutionary, and Buy

  Chapter 4: Healing the Great Leader’s Children

  Chapter 5: Same Bed, Different Dreams

  Chapter 6: A Manchurian Candidate?

  PART II

  Chapter 7: Southerners, Yankees, and “Chinese Lips”

  Chapter 8: Feeding the People