A Look Inside North Korea
PYONGYANG - AUGUST 8, 2012: Biggest show in the world - Ariran Festival with the 150,000 people in the Pyongyang capital of North Korea, 100th Anniversary, August 8, 2012, North Korea

The recent Interview saga awoke a patriotic fervor throughout the United States not seen since Coach Bombay led Charlie Conway and Team USA to defeat Iceland in The Mighty Ducks 2. The Interview Affair ignited such passions perhaps because it hearkened back to a bygone era of Cold War ideological warfare between the “home of freedom” and a Stalinist regime.

Outside the lens of Team America: World Police and The Interview, North Korea is a place that few foreigners know much about. Perceptions – whether true or not – are compounded by images like the below, blogs covering North Korean leaders

looking at things, and on a much more serious note, heartbreaking reports of horrible human rights abuses.  The place is mystified in the minds of many, allowing for pop culture to form an impression even if not true because the country is essentially cut off and reclusive.

North Korea

Recently, I spoke with Felix Abt, a Swiss businessman who recently published, A Capitalist in North Korea, about his seven years of living in The Hermit Kingdom. Originally sent to North Korea while working for the ABB Group, Abt later managed the Pyongsu Joint Venture Company – a pharmaceutical firm in the country. He also founded the Pyongyang Business School to teach Western business practices to North Koreans.

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His observations are surprising. For instance, Abt believes Kim Jung Un to be a reformer. Below I have reproduced portions of the conversation – for the rest, please listen in.

Like Jim Rogers, we too are looking at North Korea as a place of opportunity when conditions allow.

TRANSCRIPTION:

Felix, you lived in North Korea for 7 years between 2002 and 2009. What were you doing there?
Contrary to what my friends predicted, that I would not have much to do before I moved to Pyongyang, it was actually one of the busiest periods of my life. I sold a wide variety of products worth millions of dollars and sourced others, negotiated over a dozen joint venture contracts of which a few materialized and advised others in a variety of ways. For example I advised the Russian railways on the set-up of their first JV, co-founded the first business school and the first foreign chamber of commerce. As president of that chamber I received the first delegations of European parliamentarians, talked to the media and stubbornly lobbied – domestically – for a more business and investor-friendly environment and – internationally – against sanctions that hurt legitimate businesses.

Working for a Western firm, how was your access to the market? What types of competitors were there?
As country director for ABB, a global leader in power and automation technologies, and later as commercial agent of a group of companies in business segments I considered of strategic importance, I was positively surprised at how much access I was given to meet with customers. On behalf of Sandvik, a mining equipment company that I represented,  I once organized  a large workshop in Pyongyang’s Cultural Palace for North Korean mines. Mining engineers from mines all over the country flocked to Pyongyang to attend and could meet and talk with foreign peers for the first time. Similarly, on behalf of Dystar, a global leader in dyestuff, I organized a seminar for textile and garment factories from all over the country. Many of their technicians also came for the first time to Pyongyang because of this event. Or a new South Korean-invested car factory in Nampo could only take off after they installed the large UPS we sold to them. So I had a wide customer portfolio from mines to power stations to cement factories to garment factories to farms to food processing plants to hospitals and pharmacies. I dealt not only with directors but often with lower ranking staff like engineers and technicians who were in charge of using our products and services.

Since you worked at a Western utility firm, how is the infrastructure in the country? I have this image in my mind from that satellite photo showing North Korea as black while China and South Korea are lit up and electricity is extremely rare, is that true?
Indeed, power shortages, in particular outside the capital, are clearly visible. Although some new power stations were built over the last decade and existing power stations were repaired, it remains a significant bottleneck for economic development. Unlike other developing countries that have received loans worth billions of US$ from the World Bank and from the Asian Development Bank, North Korea was refused such vital loans due to opposition by the U.S. and Japan. Also we at ABB noticed that a significant part of the electricity generated in power plants is lost in the transformation and distribution system that needs substantial repair and upgrading. The situation there is similar to that in agriculture: a significant portion of agricultural produce is rotting on the fields in North Korea because of a lack of vehicles, fuel and good roads preventing it to be distributed to the cities in time. As ABB’s country director I therefore signed a pre-contract with the Ministry of Energy Production and Coal Industries to rehabilitate and upgrade North Korea’s power distribution grid. However, when tensions were rising between North Korea and the U.S., ABB like many other multinational groups stopped doing business with the country as they feared being caught in the middle of a bitter conflict and risk losing a much larger business in the U.S. As a result, that project didn’t materialize…

What’s the state of other infrastructure such as roads, bridges, etc.?
Recurring floods destroy or damage roads and bridges. Here again, the funds needed to build a weather-proof robust infrastructure are huge and without them there won’t be much improvement.

How did sanctions impact your business?
Business became more expensive as it proved to be more difficult to find suppliers and service providers prepared to work with a North Korean company. The remaining few suppliers took advantage of this and massively overcharged their North Korean clients. Buyer and purchaser also had to figure out how to make and receive payments since the West cut North Korea off the international bank system which means a simple bank payment transfer is no longer possible. Also life for manufacturers has become harder because there are so many products now banned. In particular so called dual-use products that are used both for the production of weapons and civilian products. The use of such products however is unavoidable in numerous civilian industries, from the extraction of mines, to car manufacturing to food processing and pharmaceutical production to name a few. Last but not least sanctions are an important obstacle for the emerging middle class to develop and to buy products and services. It’s also therefore a stumbling block to the development of a vigorous domestic market.

You created a business school in Pyongyang, called PBS. How was that experience?
When I arrived in Pyongyang in 2002, North Korea had just emerged from a huge crisis which led to the lay-off of millions of workers. The socialist Public Distribution System which clothed and fed the population had just collapsed to a large extent. Over night informal markets sprung up to fill the gaps and even managers of state enterprises had to adjust to these new developments to help their enterprises survive. They were used to getting production targets ordered by the state planning commission; however the new circumstances obliged them to research their markets, set up marketing strategies, introduce customer service, streamline supply chains, lead with reliable figures provided by a new finance and controlling unit in their company and so on. At regular seminars for senior executives we taught them these basic competences. Students of the business school excelled at their work places by successfully turning around their enterprises, some even became innovators and pioneers, for example by introducing the first bank debit cards or running the first advertising company. By North Korean standards this was a truly revolutionary change as advertising was considered ‘capitalist’ and banned before. In short, the seed for a new breed of entrepreneurs were planted, jobs were created and new ideas were experimented with. Since then, more and more old acquaintances of mine, including former staff, have started running their own businesses.

Culturally, were North Koreans accepting of Western business practices and training techniques?
Surprisingly, when our lecturers illustrated that the theories taught worked in practice, these post-graduate students  happily accepted what they learned. Since many of our lecturers were seasoned senior executives with brilliant international careers, I noticed an extraordinary bond developing between lecturers and course participants.

What happened to cause PBS to close?
After North Korea launched its first nuclear and rocket tests the West slashed sanctions upon the DPRK. Multinational companies and sponsors which had pledged support did not want to get caught in the middle of a bitter dispute and risk losing sizeable markets in the West because of their modest engagement in North Korea. They stopped supporting it. Switzerland as the last remaining sponsor was ordered by its parliament at the initiative of a right-wing parliamentarian to cut funding for so-called capacity building projects and limit its activities to mere humanitarian aid.

North Korea, Pyongyang, April 2012, People's Army Circus
North Korea, Pyongyang, April 2012, People’s Army Circus

QUESTIONS ABOUT THE BUSINESS COMMUNITY
How large is the community of Western expatriates in North Korea?
We were 12 resident foreign business people in 2005 when we founded the European Business Association, the first foreign chamber of commerce in Pyongyang. Now there are not even half as many as a consequence of Western embargo policies. However, the population of Chinese investors and traders have substantially grown over the years.

What other Western firms are present in North Korea? Do they export products abroad?
A few Western firms are doing some toll manufacturing in the garment and toy industries.

What was your access to the country like? Were you able to travel and engage with North Koreans freely?
I was able to move alone, day and night on foot or by car in Pyongyang and 30 km outside around the capital. I could drive alone for example to the port city of Nampo. To leave Pyongyang beyond that area a permit was required but I received it rather quickly for business purposes. To travel to business meetings in provinces I was accompanied by my technical staff or local business partners. Since I was marketing a wide range of products countrywide, I was also setting up businesses and I was dealing with numerous people like farmers, workers at cement factories, engineers in food processing plants, medical doctors, software engineers etc. I was soon known to many people and more and more doors started opening.

Is North Korea open for business to Westerners?
North Korea has been open for business to Westerners for more than two decades. If you compare its foreign direct investment law and other laws and regulations governing foreign investment and trade, it is quite modern and investor-friendly compared to that of other emerging markets. You’d perhaps better ask the other way ‘round: Is the West open for business with North Koreans?

What about Western investors? For Western investors intrigued about opportunities in North Korea, where do you suggest that they look? What types of opportunities might be promising in North Korea?
At this development stage North Korea is a promising location for the processing of products from garments to shoes to bags where you send the cloth or the leather and the accessories and they send you the finished products back.
The same goes for the extraction of minerals and metals, abundantly available in North Korea, in which case you would send equipment and get the mining products. In addition, the manufacturing of low to medium technology items is very competitive and such products are already being made with foreign investment in North Korea, from artificial flowers to furniture to artificial teeth. I was involved in making the business plan for the artificial teeth joint venture and know therefore that such products can be manufactured with a much better profit margin than  the Philippines for example, where the artificial teeth had been produced before.
A particularly promising industry could be IT due to the extraordinary quantity and quality of mathematicians and scientists unmatched by other countries. This depends on if and when North Korean software engineers are allowed to use the internet and communicate with foreign clients online when developing projects with them, as is usual in this industry.
For Western businessmen operating in North Korea, what are some of the cultural challenges you faced?
Western businesses like any foreign businesses have to have both a long-term vision as well as an exit plan. You need patience and stamina, and the ability to adapt to a demanding environment. It’s a déjà vu experience for those who once did business in China and Vietnam when these countries opened up decades earlier.

CHENGDU - MAY 29: North Korean Pyongyang folk dancers perform in the 3rd International Festival of the Intangible Cultural Heritage.May 29, 20011 in Chengdu, China.
CHENGDU – MAY 29: North Korean Pyongyang folk dancers perform in the 3rd International Festival of the Intangible Cultural Heritage.May 29, 20011 in Chengdu, China.

PERCEPTION QUESTIONS

Most people in my generation perceive North Korea to be as the cliché hermit kingdom where women are indoctrinated to cry at the sight of Kim Jong Un and everyone is raised to hate the West. How did your experiences compare to this perception?
Personality cult and propaganda is of course still strong, however when you deal as a foreigner with North Koreans you don’t feel it much. Relations with North Koreans are relatively relaxed and business-like.
Like in many Asian societies women are the driving force of the economy. North Korean men used to be breadwinners until the nineties when they had jobs offered by the state, now it’s mainly women since they are trading and do other business to feed their families. Unsurprisingly, unlike the self-confidence of the men, that of North Korean women has grown a lot in the last decade and, as a side effect, divorces are on the rise like in other parts of Asia.

Why is there such a wide disconnect between media portrayals of NK and your actual experience?
People expect nothing but horrific stories to come out of North Korea. I sometimes had lengthy discussions with journalists on North Korea. Then they send their article to their editor who disagrees with most of their newly won insights and replaces them with well-known stereotypes as he fears the readers may reject the article without them.

What about sanctions? Do you see them as a positive force towards creating change or openness in North Korea?
If the latest sanctions by the U.S. will, for example, take away the necessary resources for 10% of the population, it doesn’t hurt the top 10%, however the most vulnerable 10% at the bottom may die. In general, the sanctions hurt first and foremost the society’s weakest and secondly the emerging entrepreneurial middle class, which would be the most important agent of change in North Korea’s society, while the elites consolidate the system.

Why do you think so many people get angry when you tell them that the truth of life in NK is different than what they are being led to believe?
There is plenty of propaganda in North Korea, and no less propaganda about North Korea in the rest of the world. The image of a static, abusive and brutal system is so deeply ingrained that people feel a nuanced view or any change for the better is a lie.

It seems that on some policies even China has lost patience with North Korea?
China may perceive certain actions by North Korea as a nuisance, but we don’t really know their North Korea strategy as the Communist party’s standing committee does not publish it…

Business people and investors like you are criticized by activists and politicians as collaborators of a brutal regime and that they enrich themselves at the expense of the oppressed population. What’s your answer to them?
There is an irreconcilable contradiction between those who are pro-engagement and for incremental change and those who are against it. Those who want to isolate North Korea and use coercive means like sanctions are not interested in change as they believe North Korea cannot and will not change. So they work for a collapse which would provide large conglomerates in South Korea with huge natural resources for nothing and a huge cheap sweat-shop labor pool in the North. Those who engage North Korea however do this because they believe that this is the only peaceful way to help North Korea change and integrate into the world community. By freezing North Korea into a state of isolation the status quo is merely cemented and the sufferings of ordinary people will go on or become even worse.

If you were consulted by Western governments to design a plan to integrate North Korea into the wider international community, what aspects of today’s policies would you change?
I would suggest to end the Korean war first by replacing the armistice with a peace treaty and by normalizing relations. I would also address North Korea’s security needs (that is allowing it to keep a few nukes as the only effective deterrent, given its outdated conventional army against the abandonment of its nuclear development program), lift sanctions and vigorously engage it in a wide range of areas. With this, North Korea could quickly become a ‘normal’ country and a member of the world community.

Are things changing in North Korea? Do you see any shift towards greater openness?
Farms and other enterprises are being given an amazingly large degree of autonomy and markets are now much less curtailed and develop faster. In parallel more and more information is circulating which means there is automatically a shift to greater openness. That’s at least what happened decades ago already in China and Vietnam when they opened up.

What are your thoughts on the potential for Korean reunification – do you think it can happen?
Sadly, major players in the neighborhood and beyond (who have a decisive influence on the Korean peninsula) have no interest in a Korean reunification as they consider it not being in their best interest.Therefore in my opinion, the potential for Korean reunification is not very big.

What is the one resource that you would recommend to people who want to learn more about what is really happening in NK?
There are sites like 38north,  sino-nk and nknews that provide good information and analysis. I would add to the list Andrei Lankov and Ruediger Frank, the best informed scholars and North Korea experts with the best grasp of what is happening there because of their own history and background.
Felix Abt, the author of A Capitalist in North Korea: My Seven Years in the Hermit Kingdom, has been doing business with North Korea over the last 12 years. He is a shareholder at North Korean joint venture companies.

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