How to think about market opportunities in the DPRK

I recently presented at an annual conference an emerging markets-focused hedge fund (>$1B AUM) held for their investors. They had some (small) exposure to North Korea in their portfolio and felt that it was necessary to learn more about the market, and educate their investors on the place. North Korea is probably ill-defined as an emerging or even frontier market, and until the word for such a market exists, I think it is better classified as a provocative thought exercise for investors. A point I made at the event is that execution matters far and above most other factors in evaluating opportunities in North Korea. Classifying opportunities by industry in North Korea is one way to study potential opportunities. However, I prefer a framework with different categorizations that better aids financial investors in understanding the challenges of executing in this market. I classify the economy broadly into the following segments:

1. Informal markets: These are the small-scale businesses that have been the focus of much scholarly work. However, given the lack of scalability in most of these businesses, these should not be the focus of most investors.

2. Scalable “private” businesses: These are businesses that are often run with tacit approval from the government, but whose managerial control and decision rights can be traced to specific individuals. These businesses span a range of sectors and have potential to be scaled up.

3. “Complex” industries: Unlike #2, businesses in this sector are not clear opportunities at the moment, but might be so in the unclear future. These are industries where there are no clear regulations or proof-of-concepts, resulting in uncertainty over how the government will treat the business. Examples include advertising or insurance, which faces restrictions that make them unlikely near-term opportunities.

4. State-Owned Enterprises: These entities are increasingly looking for joint-venture partners and like #2, they have the potential to be scaled up. The key differences with #2 are that they carry more legacy issues, have different incentive structures, and generally require more effort to navigate.

Internship Roundup

Some observations from team members who were involved in our pilot internship in Singapore, during which 5 Koreans spent a four-week practicum at a start-up incubator. We took five interns aged 25-39, three of whom were ladies. Our statistics department informs us this equals 60%. The staff and interns got along well and the Koreans got a chance to see how a business in a trending industry is run, as well as understand the norms and goals for their equivalent young professionals.

For CE, this internship was a good opportunity for us to understand better the role which women play in North Korean business contexts and how also to better comprehend how programs should be conducted moving forward.

The three women were very bright, well-spoken and thoughtful. On some occasions,  the women really shone and led the group. In  group discussions or company visits, it tended to be the women who provided insightful pointers and asked pertinent questions. Over the weeks they became more integral to decision-making, also. It became clear one of the ladies had the best sense of direction towards the end, when the team nick-named her, in English, “The Navigator!”

Of all the company visits and dinners we organized, the interns were especially impressed with a visit to a large accounting firm and they also left a good impression their English fluency and curiosity.

They also went crazy for the ice-cream selection in Singapore, with unconfirmed reports that one of the ladies was averaging a tub a day. The enjoyed the global cuisine options, but were pining for Korean food by the time they got back to Beijing.

This was a good pilot run for us in many ways. Next year we kick off our Women in Business Program, which will last for all of 2013, and this helped us assess how comfortable our partners are with sending majority-female groups abroad, among other things. We're ramping up our activities next year, with more in-country programs and trips abroad for Koreans.

Of course, there is a business-culture gap between North Korea and Singapore. It became clear that the interns were not entirely sure of what an internship usually entails and this led to a mismatch in expectations. Hopefully now that our Korean partners have seen one program and with more time and experience on our side, we'll overcome this for 2013 internships.

Mobile banking in North Korea

Last year, I blogged about testing Orascom's 3G internet service in Pyongyang after meeting some of Orascom's employees. The original plan was to roll out the internet service to the expat community in Pyongyang. As far as I can tell, that has yet to happen, although doing so would greatly reduce the costs of existing internet options (ursurious broadband/ satellite internet) with some security trade-offs for users. However, it appears that Naguib, Chairman of Orascom, might have other ideas. In his words, "Orabank, our banking arm in DPRK, is actively working towards developing mobile-related businesses and projects." The 3G network provides a platform for a range of other services that emerging market economies would need including remittances and payments through mobile banking and mobile payments. Given the primitive development of the services sector, mobile provides an opportunity for Orascom to upend the services industry in North Korea.

This was something I was originally looking at in North Korea. Payments are currently messy in the country. On a previous trip, I remembered an account of a North Korean trying to pay the handphone bill. Apparently the payment went to the wrong account, and the North Koreans spent the morning calling and shouting at some people to make the mistaken beneficiary return the money so that the payment could go to the right account. For what mobile banking and payments could potentially look like in North Korea, check out M-pesa.

Presentations: Entrepreneurship and VC in North Korea

I will be traveling quite a bit over the next month to talk about a topic close to my heart: What is the state of entrepreneurship in North Korea today? Who are the entrepreneurs? How can venture capital provide a structure to support them and accelerate their efforts? I will be pretty busy in the coming weeks so I won’t be able to answer queries about what time/place these events will be at.

Tufts Fletcher School Boston 11/20

Oxford Said Business School Oxford 11/26

Conference organized by Henry Jackson Institute etc. London 11/28

UC San Diego San Diego 12/5

Google Mountainview 12/6

Investor conference for a hedge fund New York City 12/11

More Chinese inroads into Rason?

By Michael Madden On 26 October 2012, the DPRK and China staged three ceremonial events in the Rason. A ceremony was held to lay the foundation for the construction of the administrative office building for the Sino-DPRK Economic Trade Zone [ETZ] Management Committee. The ceremony included a symbolic ground-breaking, a speaking program, the placement of a foundation monument and announcement of the DPRK and Chinese managers who will work in the committee’s office. According to KCNA, Vice Chairman of the Rason City People’s Committee Hwang Chol Nam said that “ground-breaking ceremony is another progress in developing and activating the Zone.” Vice Governor of the Jilin Provincial People’s Government “stressed the need to concentrate efforts on accelerating the progress of major cooperation projects on the principles of government guidance, priority to enterprises, marketing rule, reciprocity and co-prosperity, developing the combined land and maritime transport route and building and perfecting basic establishments on a phased basis.”

A ceremony was also held the same day to dedicate commemorative tablet at the Sino-DPRK ETZ Management Committee’s temporary office building. KCNA reported that the tablet’s engraving "Rason Economic and Trade Zone Management Committee Jointly Developed and Operated by DPRK and China." The most significant Rason-related event on 26 October was the formal opening of the Wonjong-Rajin Port Road to vehicular traffic. Ground was broken on the highway project in June 2011 and its completion was the subject of discussion between Jang Song Taek and Chinese interlocutors during Mr. Jang’s visit to the PRC in August 2012. According to KCNA Hwang Chol Nam said, “the road helps increase the cargo traffic and transport of freight from northeastern China to Rajin Port and promote the development of economic relations between the two regions, including tourism.”

Attending the ceremonies from the DPRK were Chairman of the Rason City People’s Committee Jo Jong Ho, Vice Chairman of the Rason City People’s Committee Hwang Chol Nam and other officials from Rason’s party apparatus and municipal government. Attending from China were Vice Governor of the Jilin Provincial People’s Government Chen Weigen, Secretary of the Yanbian Korean Autonomous Prefecture Central People’s Committee Zhang Anshun and PRC Counsel General in Ch’o’ngjin Tian Baozhen. Also attending the ceremonies were DPRK and Chinese managers and employees of the Sino-DPRK ETZ Management Committee.

Amid the conviviality of these ceremonies, Rason realized a substantial achievement on 26 October. Chinese state radio reported that a plan by the State Grid Corporation of China to provide Rason (and hence, the DPRK) with electricity was endorsed by a panel of experts of the Beijing Economic Research Institute. SGCC’s project is nearly three-years old and the experts’ findings in the feasibility study put the project in its “activation phase” and would mark the first time that SGCC provided electricity to a foreign country.

The project involves the construction of a 97.8 km (about 61 miles) 66 kilovolt transmission line from Hunchun to Rason and a 66-kilovolt transformer substation in Rason. Currently, transformers and transmission lines in Rason are relatively antiquated, demand has increased 40% since 2007 and electricity is reliably available for only six hours per day.

On 25 October Rason officials took members of the Japanese media on a tour of the city. Japanese journalists toured Rajin Port, the Empire Hotel and aseafood’ processing facility. Jon Tong Chol, director of the Rason City People’s Committee’s External Affairs Bureau, told Kyodo News Agency that Rason is “about to be in full swing” and that “construction of infrastructure such as harbor facilities is in the final phase.”

Michael Madden is the editor of NKleadershipwatch. He can be reached at nkleadershipwatch@gmail.com.

(Translations of Key Articles Below.)

Naso'n Economic and Trade Zone Choso'n Sinbo in Korean, October 24, 2012

Naso'n Economic and Trade Zone The Naso'n Economic and Trade Zone is a special economic zone in the DPRK with preferential policies offered in economic areas. In that zone, industrial districts based on cutting-edge technology industries, international logistics, equipment manufacturing, primary processing industries, light industry, service industries, and modern agriculture will be constructed on a planned basis.

Corporations, individuals, and economic organizations from different countries around the world may invest in the zone. It is stipulated that Korean compatriots living outside the territory of the DPRK may also invest in the zone.

Furthermore, it is stipulated (under the Law on the Naso'n Economic and Trade Zone) that investors may freely engage in economic activities by establishing companies, branches, and offices in the zone and that the state should provide investors with preferential conditions for economic activities in terms of land use, labor hiring, tax payments, and market access.

The Characteristics and Advantageous Conditions of the Naso'n Economic and Trade Zone

The Naso'n Economic and Trade Zone has advantageous conditions as a potential world-class investment and trade hub connecting Northeast Asia, Europe, and the North American region because the DPRK, the PRC, and Russia are bordering one another across the Tuman River.

The Northeast Asian region encompasses the DPRK, the three northeast provinces of the PRC (Heilongjiang, Jilin, and Liaoning), the Russian Far East, Mongolia, and Japan. The region's population reaches several hundred thousands, and the region covers an area of 9,168,000 square kilometers. The countries in the region have advantageous conditions for economic cooperation and exchanges.

The PRC's northeastern region has mountainous areas including high mountains extended to the DPRK's Mt. Paektu as well as fertile farmland.

Annual grain production reaches tens of millions of tons, and bean production is among the highest in the world. The region is also home to timber forests of high economic value, hundreds of herbal plant species, and abundant underground resources. There are also some 100 varieties of metal mineral resources.

The Russian Far East adjacent to the city of Naso'n shares the border with northeastern Mongolia and faces the PRC across the Amur River (Heilongjiang) and the Ussuri River. This region has mountain areas throughout much of its territory and rich underground resources including forestry resources, crude oil, natural gas, mineral ores, lead, and copper.

The Naso'n Economic and Trade Zone's geographical location is most advantageous because it connects the three northeast provinces of the PRC, the Russian Far East, and Mongolia -- which are promising economic and trade development zones in the Northeast Asian region.

Seaports in the Russian Far East get frozen during wintertime.

The Naso'n area provides advantageous conditions in that context.

The Naso'n Economic and Trade Zone will grow into a friendly economic and trade zone making a joint contribution to the economies of the DPRK and the PRC, and transit and transportation and people's welfare promotion in the two countries in the future, and, going further, it will be able to propel the economic development of the Northeast Asian region and support world economic development as well.

The advantages of the Naso'n area as an economic and trade zone were also evidenced by the 2008 groundbreaking ceremonies held between the DPRK and Russia for the renovation of the Najin-Hassan railway and the port of Najin.

When these new links are open, the transport distance from Asia to Europe will get shorter, sharply reducing transport costs (20 July 2011 edition of Rodong Sinmun). Promoted Investment Sectors in the Naso'n Economic and Trade Zone

The DPRK plans to develop the Naso'n Economic and Trade Zone into a major international freight relay transportation center, a major export goods processing base, and a major international finance and tourism destination in the Northeast Asian region.

The following are investment sectors particularly promoted in the Naso'n Economic and Trade Zone (data released from the Naso'n Investor Service Office)

1. Infrastructure Construction (airfields, the Najin port, the So'nbong port, the Ungsang port, rainwater drainage, potable water supply, electricity, telecommunications, railways, roads, urban street construction, heating)

2. Cutting-edge science and technology sectors producing world-class products with high international competitiveness to pioneer new markets and expand overseas product sales channels.

3. Energy and commodity industries (energy, building materials, steel, non-ferrous metals, timber)

4. Equipment manufacturing industries (automobiles, light industry machines, processing machines, farm machines, ship repairs).

5. Cutting-edge technology industries (computer manufacturing, telecommunications equipment manufacturing, home appliances, electronics, biomedicine, healthcare products, maritime industries).

6. Light industry (textiles, green foods, fisheries).

7. International logistics industry (domestic logistics, export and import logistics, relay trade logistics, warehousing, general bonded processing trade)

8. Tourism (border crossing tourism, vacationing industries, tourist resorts, Pip'a Island resort construction).

9. High-efficiency agriculture (high-efficiency agriculture experiment district establishment, rice and corn cultivation base construction, seed and seedling production base construction, specialty forestry farming base construction, agricultural product processing base construction).

State Grid Corporation's Project To Provide Cross-Border Power Supply To DPRK Enters Activation Phase China National Radio in Chinese, October 26, 2012 By Chao Xiangrong, Yan Xuan, and Zhao Lun

Changchun - The feasibility report on power supply to the DPRK passed preliminary review by the experts group of Beijing Economic Research Institute under State Grid Corporation of China [SGCC] in Changchun a few days ago. This means that the SGCC project to provide cross- border power supply to the DPRK, which has lasted for three years, is entering the activation phase. The DPRK power supply project under review this time marks the first time that SGCC is directly supplying power to a foreign country. This project is designed to promote the construction of infrastructure facilities in Sino-DPRK Naso'n Economic and Trade Zone [NETZ], satisfy the electricity demands of the DPRK-bound enterprises in production and of the related businesses and the people's livelihood. The project will build a 97.8-kilometer of 66 kilovolt transmission line from Hunchun to Naso'n, and construct a 66-kilovolt transformer substation in the DPRK Naso'n city

Reportedly in the past five years the DPRK NETZ power load has increased by 40 percent, and the existing generators' installed capacity is absolutely unable to satisfy the load demand. Coupled with the urban power grid's timeworn transmission and transformation equipment as well as seriously aging transmission lines, power supply can be sustained for no more than six hours at most each day; electrical power is short by over 30,000 kilowatts at least. The activation of the DPRK power supply project will undoubtedly be a "timely rain" for hundreds of enterprises that hunger for power supply in that area.

An informed source said that on that day the experts attending the meeting fully deliberated the project's technical plan, while presenting their opinions on the project's potential risks, reduced construction workload, transmission line corridor, environmental protection, and other issues, which will be used in revising and perfecting the project in the near future.

North Korea’s Property Market

Rason has opened up property development to foreign investors (see some of the pictures a colleague took). Some investors have asked me about the prospects for property investments elsewhere in North Korea. The short answer is that there are opportunities to invest in North Korea’s property market outside of Rason, although it will take some ingenuity to execute well on an investment strategy focused on this asset class. To understand the property market in North Korea, it is useful to think of this market as being made up of three sectors. There is the state-owned sector driven by the government, the legal private sector in which both joint-ventures and local companies are involved in, and an illegal but flourishing housing market.

The state owned-companies, normally with manpower provided by the Korean People’s Army, build housing and other buildings for state purposes. While the state is technically supposed to provide all housing, it is unable to satisfy demand, or unable to cater well to a sub-segment that desire higher-quality or roomier housing. Hence, enterprising individuals or groups of North Koreans undertake construction of housing which are then re-sold to paying customers. A friend at the Economist wrote a very good article on this in 2007. DailyNK has also commented on this practice recently.

One entry point (and there are a few) is for a North Korean entrepreneur to fall off the grid by joining the army at a lower level, and using his connections, ability to put together financing, and manpower from the army unit to build and sell apartments (which are officially “allocated” to people who paid for them). In some reported cases, the state shares in the project as it gets its share of apartments.

Investors can legally participate in property development most directly through building hotels and office space. However, at last glance, it looks like Pyongyang has an oversupply of hotel rooms, especially with the Taedonggang Hotel finally completing its multi-year refurbishment next year, and more so now that the Ryuggyong Hotel is finally on the way to completion and will be open for business with a projected 300 rooms next year. With the potential to release unused capacity as and when the market can accept it (>1000 rooms), Ryuggyong will hang as a sword of Damocles over any new high-end hotel developer. The office rental market is rather opaque, and there is a risk that foreign investors might be stuck only being able to rent their offices to other foreign businesses, of which there is questionable demand at the moment.

There are other entry points into the property market that might make more sense. We are trying to gain a better understanding of some of those options at the moment.

Hwanggumpyong: Still Serene

Rason is developing steadily, if not swiftly. Kaesong continues to bridge the economies of the two Koreas, recent tax issues notwithstanding. Meanwhile, over at Hwanggumpyong…crickets.

Visitors to Hwanggumpyong in August described it as a dirt depository for displaced earth from construction projects elsewhere in Dandong. This, of course, is not what Pyongyang envisioned when it sent Jang Song Taek to the groundbreaking ceremony in 2011.

So why is so little happening there? Does this reflect tension between China and North Korea? Do suspicions related to 2002’s Yang Bin affair still lurk? Is China withholding HGP development as leverage on other issues? The answer is a resounding ‘probably not”. Why not?

This Yonhap News article from earlier this month offers some hints.

The unnamed source in the article complains that demand from Chinese companies for low-cost, high-productivity North Korean labor is quite high, but when they go to try to make it happen, the red-tape in and other obstacles in China make it impossible.

The fact is that while Rason offers legitimate logistical advantages to landlocked Chinese businesses and has strategic value, Hwanggumpyong still offers nothing but cheap labor. And outsourcing labor from China is not simply a business decision. So while it might make business sense for a Liaoning company to throw up a cheap factory in Hwanggumpyong and have several hundred North Koreans making textiles, it doesn’t make sense for a local government to allow that to easily take place.

At the provincial, sub-provincial and prefectural levels and below, there are employment and GDP targets to hit and even if you’re going to make many of your statistics up, they usually have to reflect something similar to what’s happening on the ground. Officials in Liaoning just don’t want to see thousands of jobs shipped across the border.

At the end of the day, it appears as if securing permission for small-scale importation of labor is not impossible. This article from Reuters illustrates the kind of venture that the Chinese are comfortable with: labor imported on a small scale. Twenty employees is a drop in the labor-pool. (It should be noted, this factory clearly is not ordinary, having received support from Incheon city government and combining South and North Korean staff.  Most companies employing Korean laborers would certainly be far more reticent to have journalists poking around.)

Earlier this month at the China-DPRK trade expo in Dandong didn’t appear to have any great focus on Hwanggumpyong, though leaflets promoting it were handed out. There were plenty of exhibitors at the expo, testament to how the Dandong-Sinuiju bridge across the Yalu continues to be the economic artery through which goods flow to Pyongyang. But until Liaoning gets comfortable with its businesses outsourcing jobs, Hwanggumpyong will be just another island in the river.

조중친선주간 부문별행사들 진행 -- 상품전람회 North Korea (DPRK - Democratic Peoples Republic of Korea) Nordkorea (DVRK - Demokratische Volksrepublik Korea) Corea del Nord - Repubblica Democratica Popolare di Corea Corea del Norte Corée du Nord Koreańska Republika Ludowo-Demokratyczna Корейская Народно-Демократическая Республика Kuzey Kore كوريا الشمالية 조선민주주의인민공화국 朝鮮民主主義人民共和國

Transfer Pricing, Tax Evasion and Kaesong's New Tax Policy

North Korea recently made some tax changes to firms operating in the Kaesong Industrial Complex. As tax policy is one area we will be covering in our training programs in North Korea (read this and this), the tax changes were interesting to us. You can read more about the package of changes at Korea Times and Joongang Ilbo. Key related points include:

1. North Korea can reassess tax rates based on its own calculation of output prices and input costs if it deems the reported profits artificially depressed

2. North Korea can impose up to 200 times the amount of money involved for companies caught committing accounting fraud

3. North Korea dropped clauses prohibiting retroactive taxation

Given that the changes are recent, it remains to be seen how these will be implemented in practice. At the heart of the dispute appears to be transfer pricing and tax evasion. Transfer pricing is a practice whereby companies sell to their subsidiaries or entities overseas at depressed prices or purchase input from subsidiaries overseas at inflated prices, moving profits to more favorable tax regime. Given that this is an intra-firm transfer, companies can theoretically optimize their tax burden. Many countries have adopted rules governing transfer pricing to prevent such activities.

It is uncertain if the firms engaged in transfer pricing in Kaesong actually report their profits overseas – falling more into the tax evasion category of things. While South Korea reports the earnings of firms in Kaesong, and quite a few North Korea analysts have taken these reports at face value, I am somewhat suspicious of these reported numbers. Having talked to some businesspeople in the zone who claimed to be doing well, I would not be surprised if some firms in Kaesong artificially depress their reported earnings to minimize their tax burden.

While transfer pricing is definitely an issue, these changes are business unfriendly, especially the incredibly punitive fines it allows North Korea to levy. Systematically, North Korea needs upgrades to its audit infrastructure, including encouraging or even subsidizing auditors to set up shop in the country. Without such firms, there is significant room for disputes over the appropriate taxes companies need to pay.

Size Matters: Benchmarking Rason against other Port Cities SEZs

In 2010, a promotional video of Rason’s urban masterplan was released. Focusing on the Rajin District, there were extensive computer generated images and fly-through, taking viewers through monumental avenues and attractive landscapes while elaborating on the importance of an urban development plan in order to create a well-functioning city. The plan divides the Rajin District into various areas: Central, Ansu, Changpyong, Sosang, Geokjeon, Dongmyong, which contain specific functions. Government buildings are located in the Central and Sosang area while exhibition halls are located in Changpyong and factories in Yeokjeon.

CE_RasonUrban_00

The biggest part of the video was dedicated to Ansu, which aims to be a hub for finance and tourism. The area will be divided into six smaller zones (commercial, financial, cultural, housing, foreign residence, sports) stringed together linearly along the narrow eastern coastline of Rajin bay. Compared to the industrial facilities of Rajin Port on the opposite side of the bay, Ansu by contrast aims to attract foreigners by providing a mixture of financial center with spaces of leisure and entertainment along the waterfront.

DSC05551

While the video expresses the grandambitions of Rason, the complexity in realizing it is equally immense. There are various factors that urban planners need to consider, ranging from the development of technological infrastructure required of a contemporary networked city to the physical size of the city, which will determine its fundamental characteristics.

In general, the physical nature of Rason is governed by its hilly geographical terrain, which may limit the future expansion of the city. Given such constraints, what can we infer from the current boundary of the city? Is it an optimum size for accommodating a suitable population density and does it have good quality urban spaces which in turn attract people to work and live in the city? Does its physical size need to grow or is it already too large and sparse?

Perhaps we can have better glimpse into Rason’s future by benchmarking its size against other cities, economic zones and hubs. The following diagrams compare the size of Rajin district to other port cities, SEZs within North Korea, foreign specialized SEZs/research hubs and mixed-used SEZs.

The district is 16.66km2 large, about a tenth of the size of Pyongyang.

CE_RasonUrban_01

It is approximately the same size as other SEZs in the DPRK, both proposed and in operation.

CE_RasonUrban_02

It is also not dissimilar to other North Korean port cities.

CE_RasonUrban_03

However, when compared to cities overseas, one can start identifying stark differences. Cities with specialized services, such as the financial hub of Canary Wharf in London, research hub in One North Singapore and Masdar City in Abu Dhabi, are all at least 50% smaller than Rajin District.

CE_RasonUrban_04

However, when compared to other mixed-use economic zones, such as Songdo City, Tianjin Eco-City and Suzhou Industrial Park, Rason’s development is smaller in scale.

CE_RasonUrban_05

Another important characteristic of these developments is the close proximity to airports which provides easy access for business travelers. Songdo is 14km away from Incheon Airport, Canary Wharf is 4km away from London City Airport, and Masdar City is right beside Abu Dhabi Airport.

In general, we get a few takeaways from benchmarking Rason against other cities and SEZs. Firstly, Rason being a mixed use economic zone is not large when compared to the Chinese examples. Ansu which is planned to be a specialized financial and tourism hub is about a fifth of the entire Rajin district and is comparable in size to the specialized hubs of One North or Masdar City. Secondly, most of these developments, especially the mixed-use economic zones develop in phases over at least a 20 year time period. Finally, the development of an airport could be a very important factor to ensure the accessibility of the city, which Rason is currently lacking, given its geographical isolation.

The Importance of Urban Management Systems for North Korea

Dolphinariums excluded, perhaps the newest tourist attraction in Pyongyang is the recently completed neon lit residential complex in the Mansudae district. Comprising of several high rise apartment blocks and communal facilities, the project was part of the leadership’s plan to build 100,000 new apartment units by 2012 to mark the 100th year anniversary of Kim Il Sung’s birth. While the number of actual built apartments ranges from 25000 to 30000, the neon lights nonetheless reveal attempts at developing Pyongyang into a “world-class city”.[i] However, its ambitions are not equally matched by its efforts in urban planning. Although urban development in North Korea has been relatively successful in providing basic housing and civic amenities for the past 50 years, it lacks the dynamism and technological infrastructure required of contemporary cities. Increasingly, cities are becoming more complex and developing the software infrastructure (data cables, monitoring systems, green technologies, etc) is becoming as equally important as developing the physical infrastructure (buildings and roads). New business parks are fully wired up and monitored jointly by IBM and Cisco, while the Senseable City Lab in MIT is developing tools for managing urban traffic.[ii] The recent proliferations of urban related indexes ranging from livability to sustainability are a testament to the growing importance of urban design and management in providing the suitable environment to attract foreign investments and professionals.

Mansudae_Night

Major economic cities in North Korea (such as Pyongyang and Rason) are far less sophisticated than some other development zones around the world.  In order to be well-functioning and be economically competitive, they need to provide better urban management systems beyond physical infrastructure. They would need to consider projects on a longer term basis since the urban infrastructure provided today will have social and economic ramifications in future. For example, to rewire or install new technological infrastructure in future would cost much more than planning for future expansion.

However, developing these infrastructures is very capital-intensive and North Korea would need to depend on external organisations for expertise and investments. While China and Russia have been investing in the physical infrastructure of Rason, the DPRK will need committed partners to develop its technological infrastructure. Already, as mentioned in previous posts, during a meeting on Land Management, Kim Jong-Un called on relevant institutions to conduct “joint study … with scientific research institutions of other countries and take part in international meetings and symposiums to introduce advanced science and technology.”[iii] As such, while the leadership understands the importance of advancing their technology to better manage the city, they need to identify Songdo’s IBM-Cisco equivalent for North Korea.

Such developments do come with strings attached for the DPRK, as the outside companies involved may possibly retain a monopoly over the infrastructural services after partially bearing the initial costs of development. But before North Korea worries about an external organisation monopolising its infrastructural services, it needs to take the first step in developing better urban management systems in order develop more competitive cities. Neon lights alone will not draw in investments but better infrastructure that intelligently manages the lighting systems in the city will.

[i]

“Kim Jong Un Indicates Tasks for Land Management” in

KCNA

, 8 May 2012,  

http://www.kcna.co.jp/item/2012/201205/news08/20120508-30ee.html

[ii] “Urban Research: The Laws of the City” in The Economist, 23 Jun 2012,  http://www.economist.com/node/21557313

[iii] “Kim Jong Un Indicates Tasks for Land Management” in KCNA, 8 May 2012, http://www.kcna.co.jp/item/2012/201205/news08/20120508-30ee.html