By Kyle Ferrier
Reports that North Korea planned to attend the World Economic Forum (WEF) meeting for the first time since 1998 were understandably overshadowed by the regime’s fourth nuclear test, yet the two developments are intertwined. Byungjin, the simultaneous pursuit of economic growth and nuclear weapons, is a key aspect of Kim Jong-un’s leadership agenda, though rarely do we see displays with such international implications so closely timed. Annual WEF meetings bring together high-ranking government officials and business leaders, to which Pyongyang was expected to appeal for foreign direct investment (FDI). The chances of successfully attracting much needed FDI were already abysmally low when the WEF announced it would revoke its invitation to North Korea in response to the claimed hydrogen bomb test. However, the most significant outcome of these events is not North Korea’s rejection from the annual WEF meeting, which was inevitable under the changed circumstances from when the invitation was first extended. It is rather how they highlight either the DPRK’s misunderstanding of or indifference towards the global economy despite overtly stating otherwise. The latter is the more likely explanation, but both mean the same thing for would-be investors.
The attempt to attract FDI through participation in the WEF comes at the heels of a Kim Jong-un New Year’s Address in which he stressed economic development, but made no explicit reference to the DPRK nuclear program as in previous years. The speech made frequent references to transforming the economy into an “economic giant” and improving standards of living. A serious appeal for external funds for internal development is in accord with these comments, though substantial internal reforms rather than rhetoric would have first been necessary. It would also seem to be a great leap forward for recent efforts to permit aspects of capitalism within domestic markets, though likely too far of a leap forward for Kim Jong-un’s comfort. Knowing its actions are incongruent to international business interests, Pyongyang has signaled a continued unwillingness to let domestic economic policy be influenced by external market actors with the fourth nuclear test.
Brashly asserting the nuclear leg of byungjin is not only needless, given the inability of the international community to incentivize disarmament at this time, but greatly counterproductive for developing the domestic economy with FDI, which should come as no surprise to North Korean leadership. Kim Jong-un may view nuclear weapons and economic ambitions as wholly separate, but sanctions bind foreign entities to operate within a set of rules that tie the issues together. Nuclear tests in 2006, 2009, and 2013 were all met with sanctions and, as would be expected, the U.N. Security Council and the U.S. Congress will expand existing sanctions in 2016. The decision to move forward with the test despite knowing this predictable cycle signifies a North Korean outlook that subordinates the cost of additional sanctions, including loss of potential growth from foreign investment, to considerations of maintaining power and ensuring its perceived survival against the United States.
If North Korea wanted to demonstrate its sincerity in attracting FDI irrespective of a nuclear program a greater effort would have been made to manage the unfolding fiasco for one of its previous success stories. In 2008 the transnational Egyptian telecommunications conglomerate Orascom entered into a joint venture with the North Korean state to build the country’s mobile network. Orascom laid out the majority of the capital necessary to create the mobile infrastructure, but in a November stock market filing the firm stated its 75% stake in the venture, worth over $832 million at the end of June 2015, was written off due to an inability to repatriate funds. The company’s CEO is optimistic at the prospect of negotiating an agreement with the government, including a possible merger with a state-owned competitor launched after the venture. However, officials have asserted Orascom would not have management control of a possible merged firm. The blame for the Egyptian company’s money repatriation woes lies with the government’s unwillingness or inability to convert local currency into scarce foreign exchange, which is undeniably linked to international sanctions. Provoking an additional layer of sanctions with a fourth nuclear test may not have much of an impact for Orascom as its fate is all but sealed, yet the company is a bleak example to investors who would operate in an even more constrained environment in which the state can exert greater leverage over foreign-controlled assets.
The close timing of the failed attempt to attend the annual WEF meeting and the most recent nuclear test reiterate that although North Korea may espouse determination for economic growth, its leaders only want to achieve this on their own narrow terms. Pyongyang may openly pursue FDI, yet an unwillingness to at least pause its nuclear weapons program to achieve this end reveals economic considerations will not lead to openness. This may indicate the regime’s objective is to keep growth within a certain threshold so as to not tradeoff the ability to control the economy through state intervention to exert political power. Unless there are any fundamental changes in the DPRK approach to nuclear policy a limited number of small-scale investments in contained Special Economic Zones will likely be the only FDI coming into the country. Larger-scale FDI projects will likely only be possible if they are politically motivated as the Kaesong Industrial Complex and the Kumgang Tourist Region were. Though Kim Jong-un has demonstrated a greater interest in the domestic economy than did his father when North Korea last participated in a WEF meeting eighteen years ago, it is evident he holds a similar belief that the global economy should play a minimal role in its development.
Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.
Photo from Valsts kanceleja/ State Chancellery’s photostream on flickr Creative Commons.
This post has been updated to reflect the World Economic Forum’s withdraw of its invitation to North Korea.