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(News Focus) N. Korea rushes to set up special economic zones, attract investment

2013/11/13 14:39

By Lee Joon-seung

SEOUL, Nov. 13 (Yonhap) -- North Korea under the leadership of Kim Jong-un is rushing to set up special economic zones all across the country in a bid to attract overseas investments critical for achieving sustainable growth, sources said Wednesday.

Pyongyang announced last month that it will set up 14 business zones around the country, a move that is unprecedented in the communist country's history, and a departure from policies carried out when the incumbent leader's father Kim Jong-il was in power.

The country even revised related regulations and laws governing such zones earlier in the year and highlighted its goal of creating industrial, agricultural, export and high-tech hubs to fuel growth.

Before his death on Dec. 17, 2011, the senior Kim focused more on political stability than on the economy and gave top priority to the military that acted as the bulwark of his control over the country.

North Korean leader Kim Jong-un inspects a food factory run by the military in early November. (Yonhap file photo)

"Compared to the 'songun,' or military-first policy of his father, the son is certainly paying greater attention to the economy," a government source who wanted to remain anonymous said. He claimed Kim Jong-un's interest in growth can be seen in the North's current policy goal of simultaneously developing the economy and its nuclear capability.

Pyongyang had even made an attempt to hold an investor relations seminar in Beijing to attract foreign investors. Its effort to open the Masik ski resort, near the North's east coast city of Wonsan, can be viewed as an extension of its desire to attract foreign tourists.

On tourism, the country held a meeting of travel agency heads in August to show off the many attractions in the country, largely unknown to the outside world.

"Under his father, the North had just four special economic zones including the inter-Korean joint venture at the Kaesong Industrial Complex, but there have been media reports that others may already be under construction," the official said.

Independent North Korea watchers said Pyongyang is aware that with little capital of its own, it must lure foreign investors, and to this end its has taken steps to offer various incentives as well as investment protection safeguards.

Under the revised law on special economic zones, investors can lease land for up to 50 years, with Pyongyang offering assurances it will guarantee rights to hold assets, ability to repatriate profits and protection of intellectual property.

The country even set up a so-called Chosun economic development federation, which is not part of the government, to assist foreign investors conduct business in the country.

"Compared to the past when Pyongyang seemed almost indifferent to foreign investment, causing most related projects to lose steam quickly, Kim Jong-un is making an effort to address concerns raised and seem more open to making necessary changes," said Cho Bong-hyun, an analyst at the IBK Economic Research Institute.

Others say North Korea's newfound interest in attracting foreign investment shows its desire to pull off tangible growth that can contribute to the new regime's stability and compensate for the leader's lack of experience.

Kim, thought to be around 30, had little time to prepare for the top job, and may want to use economic gains and greater attention to enhancing the everyday lives of people to prop up his hold on power.

Pyongyang has said that while foreign investors will be given priority to pick property they want to use for business activities, they are also being asked to give preference to hiring local workers, which can translate to better living standards for residents there.

Chang Yong-seok, senior researcher at the Institute for Peace and Unification Studies at Seoul National University, said because the North Korean economy is not really big, a small influx of investments can have an impact.

There have been investments coming from China, Russia and Mongolia, with the latest coming in the form of a Mongolian firm buying a 20 percent stake in a North Korean oil company.

On the other hand, experts like Park Hyeong-jung, a senior researcher at the Korea Institute for National Unification, pointed out that lack of any clear success stories of past investments in the North, as well as associated risks of doing business in the North, can hamper the communist country's drive to fuel growth through special economic zones.

"For now, there is a possibility that the country's drive for economic growth will fail," the scholar cautioned.

This view was echoed by Lim Eul-chul, a research professor at Kyungnam University, who pointed out that with the North unwilling to give up its weapons of mass destruction program and with international sanctions unlikely to be lifted anytime soon, it may be very hard to attract foreign investment from western countries.

"Kim Jong-un seems to want inflows of capital, but with sanctions firmly in place, any gains will likely be limited," he claimed.

Kaesong Industrial Complex in North Korea. (Yonhap file photo)

In addition to creating special economic zones and showing interest in foreign investments, the North has moved to give more incentives to its people who are more productive in their workplaces. It has also allowed more leeway to companies to make business decisions and generate profits.

Many experts said that economic systems in North Korea are similar to conditions found in China in the 1980s and that real change can come only if the North's leadership is willing to follow a consistent path toward liberalization and adoption of measures that can push up labor productivity and entrepreneurial spirit.

They said that with limited resources at Pyongyang's disposal, policymakers need to re-prioritize where the country spends its money and carry out reforms in the financial sector. This may mean less money going into the military.

"Such changes can help determine if the North is really serious about pushing forward sustainable economic growth or is only interested in half-hearted measures that will likely be a repeat of past failures," a North Korea researcher at a state-run think tank speculated.

"The next few years will show if the North is serious about change."



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