Geoffrey wrote a guest column for Wealth Briefing Asia last week. This is an excerpt from the full article: This question must seem utterly contradictory with the recent North Korean nuclear test, coming on the heels of a rocket test, and the likely chorus of think tank voices that will follow calling for increased sanctions. Given the obsessive secrecy that shrouds North Korea and its tendency to be in the news for the wrong reasons, it is unsurprising that most western investors overlook the country. However, niche interest in North Korea is rising among some American, European and Southeast Asian investors, not to mention increasing investments from mainstream Chinese investors. Hedge funds trade defaulted North Korean debt instruments while other investors take stakes in various commodity, property and retail opportunities.
Foreign businesses in North Korea still struggle with weak governance, arbitrary rules and an opaque operating environment. Despite the gap between present performance and long-term potential, I am cautiously optimistic about the next five years.
A critical factor that has escaped the attention of many observers is how mindsets have changed. There is an active entrepreneurial community on the ground in North Korea. This community does not just include the well-documented informal markets where small stall owners peddle a range of products, but also includes ex-government officials or state-owned enterprise managers who set up relatively large businesses in industries ranging from restaurants to property development. A venture capitalist who joined an education programme we conducted in North Korea remarked that this rampant commercialism reminded him of the early years of the Chinese economic take-off.
This entrepreneurial energy if rightly channeled can lead to significant economic growth. The North Korean government has committed itself publicly to developing the country and has been making it easier for investors to navigate the system, albeit at a lethargic pace.
Effective execution is the key to success in the North Korean market, and the companies that we know to have done relatively well in the market tend to share a few characteristics: significant hands-on involvement in operation and governance, boots on the ground, quality relationships with North Koreans who can be trusted, and a broad network in the country that facilitates due diligence and troubleshooting. Unfortunately, successes are still relatively rare, and investors need to go in fully aware of the challenges of this market.