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Of Fools and Their Money

When North Korea first started ejecting South Koreans from Kaesong, I noted that the Kaesong project was already economically marginal and falling well short of its ambitious goals. I also predicted that the North Korean move would be fatal to the project’s efforts to coax cowardly capital into a potential war zone controlled by the world’s most opaque, least capital-friendly regime. That prediction has already come true. The leftist Hankyoreh is reporting that South Korean companies are fleeing for the exits:

According to a report, seven companies have canceled their contracts to build facilities at Gaeseong complex since October. Three of the seven bought space at a site reserved for machinery and metal cooperatives in June, and were in the process of constructing or designing factories. The report was submitted to Rep. Chun Jung-bae of the main opposition Democratic Party by the division supporting the Gaeseong Industrial Complex at the Ministry of Unification.

Two companies are in situations unrelated to the breakdown in inter-Korean relations, one had a fire last summer and another is suffering from losses incurred as a result of investment in KIKO, “knock-in knock-out” currency options trading.

The remaining five companies were believed to have abandoned their plans because of the deterioration in inter-Korean relations. An official at one of the five companies, which canceled its investment contract in December, said, “Although the economic crisis was one of the reasons why we canceled the contract, the main reason was that business prospects have darkened due to strained inter-Korean ties. Other companies that moved to (the Gaeseong complex) at the same time also decided to cancel their contracts for the same reason. [The Hankyoreh]

The companies canceling their contracts have forfeited substantial initial investments to cut their losses. The Hanky also reports that seven more companies canceled their Kaesong contracts last year, before the North’s most recent tantrum.

Lesson learned? Not exactly. Foreign investment in North Korea is an endlessly revolving door of suckers and scoundrels, each of whom eventually leaves a fortune behind in the Worker’s Paradise: Yang Bin, David Chang and Robert Torricelli, Chung Mong-Hun, Nigel Cowie, , and Kumgang/Hyundai Asan. An even more significant example, if confirmed, would be China’s massive investment in the Rajin port. Small businesses, like tour companies, can persist as long as they serve the regime’s interests and have little impact on society, but big investments seem to have almost a perfect failure rate.

That’s why I’m confident that Egypt’s Orascom will eventually meet the same fate. Consider, after all, the ostensible reasons why Orascom is investing in North Korea — to build a hotel that can’t be filled and with a rumored erectile dysfunction problem, and a cell phone network that hardly anyone will be allowed to use. To put it mildly, there are some serious limitations on both potential markets, and it’s reasonable to assume that tensions between North Korea and Earth are unlikely to ease soon, meaning that policymakers may start to rethink financial sanctions. More troubling, however, is the news that Orascom will open up a bank in North Korea, whose cash flow has been restricted ever since that unpleasantness with Banco Delta Asia. It’s hard to imagine how one can run a bank in North Korea with enough transparency to stay out of the way of U.S. money laundering laws, chiefly 18 U.S.C. 1956 and 1957, and U.N. Resolutions 1695 and 1718, but there seems to be a limitless supply of people willing to gamble on tepid enforcement of those provisions.

My advice to Orascom would be to invest in some state-of-the-art counterfeit detection machines and get some good advice about “due diligence.”

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10 Responses

  1. I’d add the Soviet Union and China to the list. North Korea was one big huge investment – especially for the Soviets – until both realized that no matter how many billions of dollars they poured into the North to create the appearance of viability – it was just a huge black sucking hole.

    It wasn’t investment — it was welfare.

    And as soon as they cut it off at the tail-end of the Cold War, North Korean society drove itself into the ground like a meteor.

    And North Korea’s ultimate foreign policy goal is to find a way to pressure/trick the United States into becoming its welfare patron at a minimum level compared to what the Soviet’s pumped in.

  2. I was trying to find the link…can’t find it, but remember a couple of years ago china stopped providing NK with whatever type of aid until NK returned the rail cars that were sent into NK?

    Reminds me of this neighborhood thug that used to ‘borrow’ mine and other neighborhood kids’ atari 2600 games. Of course they were never returned.

    But while I was searching for that article about the never returned chinese rail cars, I ran into an article about a finnish couples trip to NK:

    http://www.hs.fi/english/article/It+was+definitely+a+labour+camp+-+Finnish+banker+documents+North+Korean+construction+site/1135242083161

    I think I hate Chris Hill more than KJI now. At least KJI really does have to do what he does.

    Chris Hill is just a self serving liar.

  3. Thanks for the post. I’ve been enjoying your blog a lot recently.

    The phrases “breakdown in inter-Korean relations” and “strained inter-Korean ties” are in the article. I’ve come to believe that there are no inter-Korean relations. The idea itself is a fantasy concocted by proponents of the Sunshine Policy. The relations can’t be harmed, strained, damaged, or broken because there simply aren’t any — unless one counts the bloodsucker & dupe relationship.

  4. oh god. i’m sure you and readers have seen this one, how Rice claims that ‘only a fool would trust NK…’:

    http://uk.reuters.com/article/burningIssues/idUKTRE4BI6AJ20081219

    i’m not even going to comment further. i guess it was a chuckle –> fury for me as i’m waiting in the checkout line at target.

    one thing i hate in the corporate world that i work in……people who cover their asses and not take responsibility.

    i haven’t seen the latest state dept org chart, maybe the state dept readers of your blog can forward one….but i can double down that the liar chris hill still reports to condi.

  5. The whole Orascom deal is a failure from the gate. I do not see how somebody could invest hundreds of millions of dollars in a venture where only less than 1% of the population can use. I mean what the hell? Most people are eating tree bark, and a handset runs more than a year’s wages.

    I cannot see them turning a profit. It is simple arithmetic.

  6. Have the readers picked up on this one?

    http://www.javno.com/en/world/clanak.php?id=219732

    I’m actually completely bewildered right now.

    Burma….I mean…..BURMA……actually did something right and humanitarian.

    I’m completely speechless. I thought the refugees were essentially dead people walking when I first read about them. Didn’t even bother giving them a chance.

    It goes to show that actually Burma….fricking BURMA….is more humanitarian the Roh and the Korean consulate in China toward NK’s.

  8. i think joshua is on some well deserved break.

    i certainly did not mean to cannibalize joshua’s blog or anything but there is just some serious crap going on and i want those who check this blog everyday manually or via RSS that stuff (whether directly or indirectly toward KJI) is happening and be aware about it.

    the latest is that KJI’s buddy Kim Jong Bill Richardson just got sacked…..i mean, he did the right thing and resign before he got sacked.

    http://uk.reuters.com/article/usTopNews/idUKTRE5032KR20090104

    i bet KJI’s people are FREAKING right now!!

    thanks Kevin for the link about the rail cars. i knew it existed…but just couldn’t find it.

    happy new year everyone!!

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