Shaping North Korea’s Emerging Economy

The future of North Korea will, inevitably, include free market economics. Taking a long view, teams of business people and educators are overcoming obstacles and making contacts within the country. I recently spoke with David Day, a Honolulu-based attorney and educator and visiting professor at Sungkyunkwan University in Seoul, and Hanoi School of Business.

Q1: What is your involvement in trade initiatives with North Korea?
A1: I hope to arrange a business tour to North Korea within the next several months. For the time being, my involvement with trade initiatives is through colleagues from Europe and South Korea who have visited or done business with North Korean non-military business operations, in that country. These colleagues are in the civilian private sector, and work with North Korean high tech business enterprises on an ongoing basis

Q2: What do you feel is the most vital next step in allowing trade with North Korea?
A2: First, the global business community has to ride out the present, very unstable period of Regime Transition now taking place in North Korea. This means that we are likely to see a number of upcoming “chess moves” in North Korean leaders as Kim Jong Eun, (youngest son of Kim Jung Il) begins to consolidate his power. There were some 14 years of violent incidents that occurred during the transition from grandfather, Kim Il Sung, to father, Kim Jung Il. I think that we can reasonably expect more than the Cheonan sinking and the recent seizure of a South Korean fishing boat, as the country is whipped into a war-like frenzy to maintain unity during the transition process.

(on March 26, 2010, the Cheonan, a South Korean Navy ship carrying 104 personnel while conducting joint exercises with the US Navy, sank off that country’s west coast, killing 46. International investigators concluded the ship was sunk by a North Korean torpedo, fired from a midget submarine)

The second step is to begin to appreciate and understand the importance of North Korea’s stated national goal of becoming a “Mighty and Prosperous Nation” by 2012. This is highly significant, as the country plans to rapidly modernize over the next few years. I agree with some PRC Chinese insiders who have quietly admitted to me that North Korea could modernize even faster than China–once they get truly committed to this goal. The reason that an understanding and appreciation of the year 2012’s goal of becoming a “Mighty and Prosperous Nation” is so significant for those of us in the business community is that North Korea will have to open up to trade in order to make this happen. It also means that it will have to somehow successfully negotiate the UN sanctions off its back in short order to really get this trade and development underway at maximum speed. However, we need to understand that North Korea is already developing its civilian high tech applications nicely, right in the teeth of the current UN sanctions.

Student, Kim Chaek University, Pyonyang

Recognize that this “Mighty and Prosperous Nation” is a long way off — or so it appears to be. But consider that North Koreans will be using some 300,000 3G mobile phone by the end of 2010, a fiber optic cable system currently being installed in all of its provinces, a new central bank for foreign investors, and a new foreign investment legal regime just recently put into place. The modernized infrastructure or groundwork for a “Mighty and Prosperous Nation” is being put into place now.

The third step in allowing or developing trade with North Korea is a legal one from the perspective of American businesses interested in investing in North Korea. Initially, this is going to require an easing of security tensions on the Korean peninsula. My view is that this will occur naturally over time as the Regime Transition period works its way through. After tensions and relations can get back to the “pre-Cheonan” level, we need to work with the U.S. Treasury Office of Foreign Asset Control to begin a more expeditious processing for applications of U.S. businesses seeking approval to do business in North Korea.

We will want to watch carefully the start-up of American James Kim’s “Pyongyang University of Technology” in Pyongyang this Fall. Mr. Kim’s university start-up is a pioneering enterprise for Americans and if he looks successful, a number of other American firms are likely to attempt to push for approval to do business with North Korea.

In conclusion, peace and stability on the Korean peninsula will require heavy private sector involvement in terms of investment and trade. The country has already gone nuclear. It is way too late in the game to even think that they are going to surrender this ace. The key is to bring them into the community of nations and that is where the private sector, with its trade and investment, has to play a leading role. It is critical then, that we focus on those sectors in North Korea that are already doing work with businesses in other countries. With the stated goal of a “Mighty and Prosperous Nation” coming up, North Korea’s high tech sector, with its developing expertise in software design, IT outsourcing, and digital animation is worth taking a very close look at.

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