Rodman in Rodong

So another famous American has gone to Pyongyang and the world scrambles to figure out if it means anything. It seems to mean a handful of things:

- Vice are crafty, crafty fellows. After producing perhaps the worst and most widely watched 'documentary' about North Korea, they found a way to get back into the DPRK. And that way was by taking a famous basketball player. (My opinions on this travel guide and the bellowing, sweaty drunk who put it together can be found in this essay. Incidentally, a much more interesting Vice effort can be found here, covering the DPRK's export of labor to Eastern Russia)

-Pyongyang can make a big deal about it in the media.  Rodong Shinmun, in some ambiguous writing, can mention all the foreign guests present and then how "Long Live!" echoed through the area for Kim Jong Un.

- It fits in with what we keep hearing: that sports have become a national priority. The State Physical Culture and Sports Guidance Commission is headed by Kim Jong Un's uncle, after all. This appears to be a feather in their cap. Having Rodman is no small thing: he is truly a basketball legend, more responsible than Jordan or Pippen for the destruction of the Seattle Sonics in the 1996 NBA finals.

- Kim Jong Un really does love basketball.

- This event also fits in with the friendly, accessible brand he's been crafting as well. He "warmly suggested Rodman sit next to him". In the pictures, he projects the impression that he is eminently relaxed and engaging.

- There is perhaps a message to the US, as the Rodong Shinmun article was full of soft phrases hoping that the two countries could continue sport exchanges such as this one and how enjoyable friendship could be between Koreans and Americans. Unfortunately, most of these were Dennis Rodman quotes, somewhat but not totally dampening the effect of the article: had it been a high-level Korean making such comments, one could construe it as a form of outreach to the United States. Being from an important US citizen, it seems more like a message to the Korean readership. That message might be something like: Korea has demonstrated it has successful space-conquering technology and a nuclear arsenal and now Americans come hoping for friendship and good relations.

Ping Pong diplomacy this ain't, though it was a surprise that Vice pulled off something at such a high level.

Not So Smooth Operators

B-ring B-ring! "Pyongyang imnida!"

"Extension five five five five* please"

"Wait a minute"

... (a minute duly waited)

"Yoboseyo?"

"Hello - is Mr. Choe there please?"

"Hold on a minute please"

Footsteps. Door creaking open. Silence. Conversation in distance. More footsteps. Silence. Footsteps. (this is often two to three minutes)

"Hello, this is Mr. Choe**"

"Mr. Choe, lovely to speak to you! I'm just calling to confirm yadda yadda blah blah"

"Yes, that will be fine. No problem."

"OK, bye bye"

At well over a dollar a minute, a usual phone call to Pyongyang for us consists of four minutes of waiting and two minutes of talking. Calling Pyongyang is not the simple task it is most places. Annoyingly often, after a few minutes of searching, Mr. Choe turns out to be out of the office. Or no one picks up and you're kicked back to the operator. The very idea of calling a city switchboard is something that my generation has only seen in black and white films.

Phones were in the news again last week, as visiting foreigners look set to have mobile internet access soon. We've seen resident foreigners checking email on phones before. And while this is welcome news for people addicted to twitter (I'm lookin' at you, Adam Cathcart!), it remains quarantined from those Koreans tasked with dealing with foreigners. Tour guides will likely have to endure more facebook pictures of bachelor parties and babies and whatnot.

Life and business communications move lightening fast in the 21st century. So now real-time uploads of Kim Il Sung Square to Instagram (OMG! CAN'T BELIEVE I'M HERE RIGHT NOW LOL!) will join the flow, dealing with actual Pyongyangers from abroad remains grindingly slow.

If the DPRK really wants to increase investment and trade, it will have to make communications more fluid for the class of people who already have permission to deal with foreign organizations. This is a narrow class indeed, but is one that could accomplish much more if they could move at a less languid pace .

*of course not really.

**also probably not really.

The Ultimate Frontier Market

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.

The Path Not Taken

Update: Maybe the US delegation did come about... All eyes are now focused on the present, on North Korea’s recent nuclear test and the sanctions that might follow. While most commentators readily condemn North Korea’s “provocation”, it might be helpful to ask whether things could have turned out differently if a different sequence of events had taken place. To do so, we need to take a step back to late 2012 and ask a belated what-if…

Just prior to North Korea’s rocket launch last year, North Korea attempted to invite a high-level delegation from the US to visit Pyongyang. The visit (apparently) did not appear to take place. It is an interesting but futile exercise to wonder what the message would have been. Could it be an olive branch in which North Korea emphasizes the desire to reset the US-North Korea relationship? Or would it have been a hardline message in which North Korea announces its intention to test its rocket and nuclear capabilities?

Regardless of what might have been, North Korea got a US delegation – the ‘Google’ delegation - after its rocket launch. But it does not seem to be the official delegation North Korea wanted. It was a delegation snubbed by the State Department publicly, in ways that neutered its potential as a mediator or messenger. Perhaps this reflected North Korean policymakers assumption that these prominent individuals would have significant input into US foreign policy.

Would the rocket launch and nuclear test be averted if a different visit had taken place prior to the rocket launch? We would never know now, but these what-ifs remind us how little the world seems to know of Pyongyang’s strategic intentions, worldview, and decision-making processes.

Other interesting commentary (not exhaustive as I have yet have time to cover everything):

Jeffrey Lewis - what can we actually do? NKleadershipwatch - how the test might have been rolled out Elizabeth C. Economy - Picks up on an interesting development that can lead to an interesting idea

Even more hotels

During our cold January visit, we stayed at the Koryo Hotel. One change that was hard to ignore was the huge gaping hole next to the venerable Koryo. Construction for a new hotel was underway and the site was quite busy, with several work teams and plenty of revolutionary music. It is supposedly meant to be a 75 storey structure, though we also heard 45 storeys thrown out. I have previously written about the hotel market in Pyongyang, and short of major changes in how North Korea relates to foreigners, I am still bearish about hotel demand in the medium term.

Cold Pyongyang

When you visit Pyongyang in the winter, you can't help but be struck by how cold it can be. Unless you're from Saskatoon. But let's face it, you're probably not. A few shots from a couple weeks ago:

Cold Space Conquer

Cold Mansudae

Cold Taedonggang

During our visit, we went for an early morning run before sunrise, after a light overnight snowfall. Neighborhood teams - men already dressed in suits for work - were busy sweeping the snow off the streets lest it get packed down and turn to the kind of icy hazard that doesn't abate until March or April.

As John Everard notes in his recent book, Only Beautiful, Please, winters are hard in the DPRK. Heating is a rare luxury in the city, but people are tough and simply buckle down and get on with things. If you live in a place where you can just turn the thermostat up without a thought, its worth remembering that this is a quality of life issue that we take for granted.

Abundant Underground Resources and the Policy for Their Development

Abundant Underground Resources

This was an article from the latest issue of Foreign Trade, Pyongyang's quarterly journal on, well...foreign trade. Like many, including Professor Leonid Petrov, we think underground resources will drive the DPRKs development, whatever direction it takes. This interview (which actually consists of just two questions, which could have been consolidated into none, really) explains the official situation on resource exploitation. The reality is more complicated than one page can express, of course.

A Very Baguettey New Year

One of the small perks of dealing with foreigners for North Koreans is access to the odd small luxuries of life that would otherwise be difficult to obtain in the country. Our newest partner assigned to work with us on the Women in Business program, a recent university graduate, made this point in a very chirpy New Year card. Last fall on a visit to North Korea, I went with our partners to the new restaurant (run by Hae-mat-chi) at the newly built Moranbong apartment complex. This restaurant had a bakery adjacent to it. When it came to ordering the entrée, our new partner got really excited. She started describing this “French Bread” in vivid terms to the waiter, explained how it had to be sliced meticulously, and how the bread expands to fill the mouth with its flavors. It was even more fun hearing it in Korean as it was full of the onomatopoeias found in the Korean language. The last time she had a baguette was 13 years ago.

When the North Korean interns for our entrepreneurship program were heading back to Pyongyang last year, we had one of them buy a baguette to bring it to our partner. Earlier this year, we received New Year greetings in the mail from Pyongyang and in it were special thanks for the baguette. Our partner described the baguette as “it is too small…but small is beautiful.”

"China's Impact on Korean Peninsula Unification and Questions for the Senate"

Recently, our attention was drawn to a very interesting report written for the US Senate. Titled, "China's Impact on Korean Peninsula Unification and Questions for the Senate",the main thesis of the report is that in any unification scenario, "China could attempt to manage, and conceivably block the unification process." China has overweening influence and currently sees the status quo as favorable. The division of Korea, in its current form, does have advantages for China. The greatest of these is that it has become a stable system of division. While not without its problems, it is currently a "manageable low-burn crisis".

Strategically, the division allows China to counterbalance the US influence on the Taiwan issue and provides China an ally in Northeast Asian affairs. It also gives China monopsony power over several key industries in the DPRK, such as mining, while not interfering with economic relations with major trading partner in the South.

If a unifcation process began to foment, China would want to protect its commercial assets and keep the north of the peninsula in its sphere of influence, the report concludes. It would also want to try to mitigate any increased influence of the US over a united Korea as well as ensure no ethnic unrest develops among Korean-Chinese along the border. These are no small tasks and the desired outcomes by no means certain. The changes could erase some of China's advantages on the peninsula.

We concur that China's current economic advantage in the DPRK is expressed (perhaps ironically) through the market. Even though the DPRK is a source of "unique anxiety", China's recent increase towards marketized support rather than direct subsidy "reflects an incremental economic integration with the North and is reminiscent of similar situations involving other sovereign states bordering China including Cambodia and Laos."

China's meta-concept for regional relations is  to “be harmonious, pacify and enrich thy neighbors” (mu lin, an lin, fu lin), promoting Beijing's twin pillars of economic growth and social stability. In this sense, North Korea is not viewed differently from other surrounding countries, as the report points out. Beijing gives little special support to Chinese companies doing business in the DPRK, but recognizes that it does not have to, because of the North's relative isolation from other regional sources of investment. It's reticence to truly back large Chinese enterprises is perhaps due to an awareness that flooding the country with transformative FDI could also be a source of risk, in that it could contribute to dramatic social change.

The study quotes an unnamed US official as saying:

 ‘‘The day China decides to break with the DPRK and the moment the PRC decides that a reunified Korean Peninsula (under Seoul’s aegis) is more in its interest than a divided peninsula, that is when the process of Korea’s national unification will begin in earnest, and there will be little the DPRK can do to sustain itself as an independent entity. It is for that reason that the North has been extremely cautious in its ties with Beijing. . . . China is the DPRK’s lifeline and insurance policy, which for a nationalistic North Korea is something that necessarily sticks in the craw, but it is a fact of life.’’

If China holds all the cards on Pyongyang's regime stability, Pyongyang also knows it holds the cards on regional stability, giving it some room to maneuver. Thus the two allies can warily look across the Yellow Sea at each other and say, "let's not change things too much".

The report, well worth reading, is here in full. 

2012 Annual Report

We are excited at introducing our 2012 annual report, capturing highlights from a year where we have continued to push the innovation frontier for programs in North Korea. The report kicks off with the following introduction from Managing Director Geoffrey See:

This year, we continued to grow programs we have conducted since 2010. On the operational side, we have improved our ability to execute well on programs, with a 17% selectivity ratio for our overseas programs, and managed to bring the average age for overseas program participants to 31 years old.

We have also continued to push program frontiers with a new program in Singapore housing DPRK interns at a startup incubator. We believe that such an unstructured work experience provides the most realistic introduction to entrepreneurship. More than half of the participants we selected for the program were female.

Next year, we look forward to opening a full-time office in Beijing, and to kickoff a new flagship Women in Business program focusing on young and high-potential female business managers and entrepreneurs.

Click here for our 2011 Annual Report.