The Last Frontier: What I Un-Learned In North Korea 13

Kevin Virgil took a trip to the last place he’d expected to go. His rare first-hand account cautions against getting sucked in by the propaganda machine – North Korea’s … and America’s.

AS MY FLIGHT began its descent into thick cloud cover, I shifted nervously in my seat.

I had only been airborne for a short time, and the experience had been pleasant enough – but I’d no idea what would come next.

In the past few years my job has taken me to some interesting places – and a fair few war zones. I enjoy the travel, and the process of discovery – but this time I was wondering just what I had gotten myself into.

Because this time, I was flying into North Korea.

The next five days would be among the most surprising and fascinating of my entire life.

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Due to some outstanding contacts and no small amount of luck, I was granted incredible access and able to witness things that most of the foreign visitors who make it here never have an opportunity to see.

Believe me, I’m hypersensitive to the risk of being used as a propaganda tool. And it’s true that I didn’t venture far beyond Pyongyang to bear witness to rural North Korea. These are merely some snapshots of life – what I saw and experienced – at times beyond the influence of our official chaperones.

Applying the same hard-headed analysis I would to any other country I visit, it’s my judgment that our perceptions of this reclusive country are fast being outdated by a rapidly changing reality. And since opportunity exists whenever information is asymmetric, this is certainly a place worth watching.

 

 What I Un-Learned In North Korea

 

TWO YEARS AGO my perspective on North Korea was quite likely similar to yours – which means that I didn’t really have one. I assumed that travel to the country was forbidden for Americans, as it has been until recently with Cuba.

In reality, anyone can go, though obtaining a visa is a challenge unless you’re with an organized tour group. And most of these tours keep you isolated from “real” North Koreans.

I’m professionally involved and interested in frontier markets, but the DPRK – the Democratic Peoples’ Republic of Korea, its own preferred name – seemed beyond the pale even for someone like me.

I had no reason to doubt the traditional Western media’s portrayal of a reclusive banana republic; a criminal state run by a family of insane kleptomaniacs; a belligerent nuclear terrorist nation of brainwashed peasants on the brink of starvation, etc, etc. North Korea is routinely referred to as the unhappiest place on Earth.

Then, two years ago, I had a fascinating conversation.  It happened while I was attending an investment conference in Hong Kong. I had become bored with the series of speakers who were droning on about resource mining opportunities in Mongolia – a country whose government at the time was making every effort to be as inhospitable as possible to foreign investors.

As I poured my third cup of coffee that day, I started chatting with another delegate who clearly shared my cynicism. Then I commented, only partially in jest, that Asia was becoming bereft of true frontier markets.

“Don’t be too sure about that,” said my new friend. “Have you ever looked at North Korea?”

I nearly spit my coffee out through my nose. “That’s pretty funny,” I responded. “You should go share your idea with the Bloomberg TV crew over there. I’m sure they’ll love it.”

“I know it sounds crazy,” he persevered. “But I’ve been traveling there for the past five years, and things are changing quickly under the new leadership. It’s a different place than it was five years ago, and the rate of change is accelerating. Right now, it reminds me of where China was in 1995.”

By this point it was obvious that my interlocutor was either serious, or barking mad. “Come on!” I said. “I realize that North Korea occupies a strategically important location for both Russia and China – and even for Mongolia. But even if it were possible for foreign countries to invest – and Western sanctions make that very difficult – the maniacs in charge could never be trusted. After all, they’re starving their own people!”

“Don’t be too sure about that either,” replied my contact. “Those people in charge aren’t as isolated as you might think. For the past twenty years they have watched surrounding countries like China, Vietnam – and, yes, South Korea – create roaring economies that have enriched both the elites and the working class. Leaders of today’s DPRK regime remember the famous quote from the 1980s, when Deng Xiaoping declared to China that ‘to get rich is glorious.’ They see their neighbors creating wealth, and they don’t want to be left behind.”

“Listen,” he continued. “You can choose to believe me, or not. All that I’m saying is you should keep an open mind. It’s never wise to believe everything you hear on the BBC.”

I had to admit that his point was valid. I have frequently railed against the inaccuracies, and sometimes outright lies, published by major media outlets about other countries I’ve visited. And up until that time, I had never actually met a North Korean. Maybe this was worth looking into.

“I’ll send you a white paper that I just wrote for one of my clients,” he said as we shook hands before leaving. “Just read it, then call me if you want to discuss.”

* * *

I CAUGHT MY first glimpse of the North Korean landscape as my Air China flight descended through thick cloud.

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It was a damp November day, and the rice fields were soaked from a recent rain. I saw small farmhouses and a few apartment blocks on the final approach before we landed at Pyongyang International Airport. Its use of the word “international” is legitimized by two routes to Vladivostok and Beijing, where I was flying in from.

Our plane was full, mostly with Europeans. Few were from China or Asia. I heard Russian, French and Italian spoken as we disembarked directly at our gate.  I was expecting to enter a dank, crumbling building, full of scowling immigration officers in olive green uniforms. In fact I had deleted the data from my mobile, thinking they’d probably scan or clone it.

But instead, I stepped into a shiny new, immaculate arrivals terminal. And while the immigration officers were in uniform, and didn’t appear to be much in the mood for jokes, they were both courteous and professional – quite a relief compared to what the American TSA subjects its foreign visitors to.

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Our bags were scanned and searched, and a record taken of all electronic devices we carried. One of my two travel companions warned me to check that I didn’t leave anything behind. It seems that even a business magazine discarded in your hotel room can create problems for a hapless traveler.

After departing the search area, we met our escort for the week – a senior official from the Ministry of External Economic Relations. This is the DPRK government agency tasked with encouraging foreign investment. It would be hard to think of a more difficult job, I mused.

MEER was created last year in a bureaucratic reshuffle to better manage the granting of business licenses and exclusive rights. There are a few North Korea-watchers out there, among them Singapore’s Choson Exchange, who believe that the MEER’s very creation is a clear sign of the government’s intent to initiate market reforms.

Our MEER man escorted us to cars for the 30-minute drive into Pyongyang. The road was in good condition – not great, but certainly better than I have experienced on the main route from other airports, such as Ulaanbaatar, where the Mongolian potholes would swallow small cars.

One of my travel companions, who visits the DPRK frequently, commented that the number of cars on Pyongyang’s roads has picked up considerably in the past couple of years.  It did seem fairly busy. Yet more traffic was taking place on the adjacent footpaths, where hundreds walked or rode bicycles.

As we entered Pyongyang, two things immediately struck me. First, the city is ridiculously clean. Singapore has nothing on this place when it comes to hygiene and order.

Every morning I went for a run along the Taedong River, and saw small armies of people – young and old – sweeping the streets with straw brooms, or raking leaves off the grass. On one occasion I saw an old man beating the falling leaves out of a tree so that he could pick them up. I was told that everyone contributes in this effort; residents are assigned specific dates to clean their neighborhoods.

My second thought was that the DPRK, like most Communist regimes, has a fixation for enormous monuments – like this one, which was our first stop. These statues, of the country’s first two rulers, Kim Il-sung and Kim Jong-Il, are each over 12 meters tall.

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After paying homage to the former ‘Dear Leader,’ we made our way to our home for the week – the Pyongyang Koryo Hotel. This is the quintessential ‘commie’ hotel – a 44-story behemoth complete with two revolving restaurants on the rooftop. We headed through the cavernous lobby and checked in.

 

 

 What I Un-Learned In North Korea: ‘Wild Dogs’ And Other Tall Tales 

 

In many ways, a trip to North Korea makes you feel as if you’re traveling back to the fifties. People dress conservatively and smoke cigarettes in formidable quantities. Credit is non-existent; the local economy is completely cash-based. We had to pay the hotel our full week’s bill up-front.

The government maintains a fixed exchange rate of 100 North Korean won per dollar. But that’s completely ignored on the streets, where a thriving black market trades a buck for 8,000 won, 80 times the ‘official’ rate.

One evening we left the confines of our hotel and walked near the central railway station to an outdoor restaurant offering a range of Korean and Chinese fare.

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Most entrées were in the range of 5,000 to 20,000 won. That implies an ‘official’ price of between $50 and $200 per dish, which would be outlandish even in Hong Kong. When factoring in the black-market rate, the prices range from 60 cents to $2.50. Three of us were able to have a good meal for a combined bill of $14.

For North Koreans, even at the unofficial exchange rate, one meal costs more than the entirety of their state monthly salaries – and yet we saw hundreds of people packing into these restaurants.  But where do these people obtain the additional income?  I vowed to solve this riddle before the conclusion of my trip.

Pyongyang is often dismissed as a ‘Potemkin village,’ or a showpiece the regime maintains to portray success to foreign visitors. One of my travel companions, who has seen much of the country, describes remote regions of the DPRK as utterly impoverished.

But while your first assumption might be that we were simply rubbing shoulders with the corrupt party elite of Pyongyang, their demeanor and dress indicated that many of these people were part of a middle class (by local standards at least). Somehow these diners had access to alternative sources of income, most likely in foreign currency.

The unofficial exchange is openly tolerated by the regime. Goods and services are always priced in North Korean won, yet payment is accepted in dollars, euros or Chinese renminbi. Change is also given in foreign denominations. In fact, it’s difficult to obtain any North Korean won. We were told that the currency is for the use of citizens only. We had to search to get our hands on some 5,000-won notes, bringing my souvenir-hunting efforts to a successful conclusion.

* * *

SHORTLY AFTER THE Hong Kong conference that first piqued my curiosity about North Korea, my contact proved as good as his word and sent over his white paper. It was remarkable — not because it was a literary masterpiece, but simply because while reading it, I realized that it was the first objective report that I had seen on the DPRK.

This is not to say that the author was supportive of the regime, or its ideology. But most analysis on the DPRK is flawed because it makes no attempt to understand the motives that drive North Korea’s ruling elite to take the actions that they do.

Countries rarely take decisions purely on the basis of what’s conscionably ‘right’ or ‘wrong’ but what is in their strategic interests. Reporting on statecraft – understanding why nations make the decisions that they make – must therefore be objective, dispassionate and unbiased.

Yet when it comes to the DPRK, even top-tier outlets like the New York Times or South China Morning Post will frequently publish stories based on a single source. Corroborating is so difficult that they appear not to bother.

Equally telling, the public’s expectations of accuracy are so low that we don’t seem to care whether a story is actually true.

Take the execution in early 2014 of Jang Song Thaek. The uncle of the then-new leader Kim Jong-un, Jang had been widely seen as the second-most powerful man in the DPRK.

Reports soon spread across the international media that Kim had ordered Jang to be fed to starving dogs in a stadium, cheered on by thousands of spectators in a scene evocative of the waning days of the Roman Empire.

The problem with this tale is that, while riveting, it’s also patently untrue. The ‘wild dog’ story, like so many others, was attributed to a single source – namely, ‘a South Korean intelligence official.’ Hey, I didn’t go to journalism school, but if I were going to write a high-level story and attribute it to a single source then I might seek out one that is a little less biased.

The media continues to rely on ‘a South Korean intelligence official’ for nearly all of its reporting – be it the Jang purge, the ‘defector’ from Camp 14, or the supposed Sony Pictures hack.

The unfortunate truth is that, when it comes to North Korea, the world doesn’t want truth – they want entertainment. We live in a world where “24 Adorable Photos of Cats Playing Piano” is worth more to advertisers than the newspaper that brought down Richard Nixon. An industry that used to inform the public now has the primary function of entertainment.

And what could be more entertaining than stories about a crazy nuclear-armed pariah state – an insular hermit kingdom that almost no one ever visits anyway?

This is the environment in which the Jang story morphed into a ‘wild dog’ execution yarn. I imagined, behind closed doors, a room full of bureaucrats from the South Korean intelligence service laughing hysterically as their off-the-wall narrative was lapped up by Yonhap, the South’s news agency, and then by the BBC and just about everyone else.

In an interview with Sky News, North Korea’s UK ambassador tells a different story: far from a brash demonstration of a new ruler’s strength, Jang’s forced removal was instead a warning shot to the party elite.

Jang had been intertwined with a long list of shadowy foreign companies that were known to have traded away much of North Korea’s rich mineral resources. More importantly – and for Jang, fatally – he was also the leader of a hardline faction that allegedly was resisting attempts to modernize the economy.

Reports surfaced that Jang hadn’t paid due respect to his newly-crowned nephew – and any student of history knows that, when you sit in the royal court, refusal to honor your king can be a very dangerous thing to do.

So was Jang executed? Sources inside the DPRK agree that he certainly was, but the ‘wild dog’ account has been largely discredited.  When that story broke, I had already begun devouring anything I could find on North Korea that resembled objective reporting. Everything I read indicated that, after decades of seclusion and abject poverty, this introverted country was beginning to change.

And I can’t remember when exactly I made the decision – it may have been when I saw the Business Insider headline “Some Lucky North Koreans Will Get To See ‘The Interview’ Because Of This Man” – I resolved to stop relying on second-hand reporting, and to go see the place for myself.

* * *

The Interview is a film about two numbskulls getting the opportunity to travel to Pyongyang and record an interview with Kim Jong-Un.

Sony executives claimed that the North Korean government had become angry about the pending release of its film, and that hackers had blackmailed and threatened the studio. North Korea had caused “a lot of damage,” concluded President Obama. “And we will respond.”

The ‘hack’ was used as a pretext to apply further sanctions, and it was alleged that the US subsequently launched a counter-hacking campaign against the DPRK. Its national intra-net (North Korea has its own closed network) was shut down for nine hours.

Meanwhile several of America’s leading information security experts raised questions. In his blog, Bruce Schneier, a Harvard Law School fellow, debunked every one of the FBI’s assertions, offering compelling evidence that the culprit was a recently-fired Sony employee.

This mattered little. Sony had pulled off the public relations stunt of the century. Pinning blame on the crazed rogue state had stirred significant interest in a film that was basically unwatchable. I use that word in its literal sense because I watched it – and it was truly one of the worst films that I have ever seen.

 What I Un-Learned In North Korea: Plastic Food? Try Micro-Brews and Coca-Cola 

 

In The Interview, that now infamous Sony Pictures film, there is a pivotal (so to speak) scene where the lead character discovers that a well-stocked grocery store he was shown while touring Pyongyang turns out to be full of plastic food.

This scene feeds into the Western perception of the DPRK as a gigantic labor camp where citizens live on the brink of starvation.

Well, here is what I saw on my first full day in Pyongyang:

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The Kwang-bok is a four-story supermarket and department store near the city center, stocked with consumer goods and food – real, not plastic.

Most of the products come from China, though I saw quite a few from Thailand, Indonesia and even Germany.

When we visited at around 11 in the morning, there were probably 500 people shopping – buying live fish from the fresh produce section, hair-care products, children’s clothing and other departments.

At least 200 were eating lunch on the third-floor food court, where meals ranged between 8,000 and 20,000 won, equivalent to US$ 1 – 2.50 at the street rate.

So was this simply a show put on for our benefit? Is the country too poor to support the existence of such a store?
I don’t doubt that the shoppers here are the nation’s elite. But that doesn’t mean that there aren’t other stores catering to the masses.

That same day, we visited a neighborhood market, with over 3,000 employees and customers bustling around. Everything – and I mean everything – was for sale here, from building materials to Thai coffee and clothes with ‘Made in China’ labels. There were even a few cans of that monument to capitalism – Coca-Cola. We were told that a market like this exists in each of Pyongyang’s 20 districts.

The one we visited functions as a state-owned collective. Most of the traders are women. Cramped in a long line, they stand shoulder to shoulder beckoning customers to the wares set out in front of them. Seeing my video image, a friend who was in China in the early 1990s said it took him back to that time.

* * *

“THINGS ARE CHANGING HERE”, said our host over a dinner of cold noodles and quail eggs. “The Great Leader has a vision, and we are creating it together.”

Yes, North Koreans really do talk like this, with reverence accompanying any mention of Kim Jong-Un, or his predecessors.

Their daily lives are full of prompts to maintain that devotion. Music fills the air in Pyongyang – a government-approved playlist that includes such hits as “My Country Full of Happiness” and “We Shall Hold Bayonets More Firmly.”

Vans fitted with rooftop-mounted loudspeakers drive around town playing the music and broadcasting the party line. It’s difficult to find a vantage point anywhere in Pyongyang that does not include a view of the Kims.

Party propaganda abounds, but we also noticed some examples of another type of propaganda – namely, advertising. On at least two occasions we saw billboard ads for state-owned enterprises, including an auto manufacturing company, Pyeonghwa Motors, which is in fact a joint venture with South Korea. My travel companion, who has visited several times, said this is a relatively recent phenomenon.

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I was also told that the amount of cars in Pyongyang has also increased considerably. We were even subjected to a few minor traffic jams in the course of our trip. Parts of the city, particularly near the central railway station by our hotel, were congested from mid-morning until late into the evening.

Most interestingly, Pyongyang has recently introduced taxi services. We counted four or more different cab companies ferrying customers around the city. At least half of the cars were carrying a fare whenever I checked.

One service in particular caught my attention; a few taxis bore the logo of the KKG Group. KKG is a partnership between the North Korean government and the Queensway Group, a shadowy Hong Kong investment firm that has been striking mega-deals throughout Africa.

At the head of Queensway is an enigmatic Chinese businessman who, according to the Financial Times, goes by seven names, among them Sam Pa, and has been striking deals on China’s behalf around the world. Western intelligence services surmise that Queensway is a conduit through which China provides hard currency to help sustain and stabilize the DPRK regime. It was fascinating to see evidence of their activities in Pyongyang first-hand.

The ‘Great Leader,’ following on from his recently departed father – still the ‘Dear Leader’ – has been slowly introducing reforms to enable people to earn more income while sticking to strict ideology. Workers can earn a second salary (“unofficially,” cautioned our host) outside of their regular government jobs. And an increasing number of Pyongyang’s elite are growing wealthy by trading with each other, and outside of the country.

In the northern Chinese border city of Dandong, which sits astride the Yalu River separating it from the North Korean city of Sinujiu, hundreds of thousands of Chinese trade with North Korea. This quintessential frontier market boomtown is outsourcing manufacturing jobs to lower-paid North Korean workers. It’s increasingly likely that some of those ‘Made in China’ labels on your clothes and children’s toys might actually be made in the DPRK.

This goes some way to explaining the disposable income Pyongyangites displayed in the restaurants and cafes during our trip. Either these people saved for four months to eat a meal of quail eggs and donkey meat (which isn’t bad but not that good either), or they’re earning beyond official sources.

Ever wary of being confined to state-managed charades, we escaped our chaperones at every opportunity. The vast majority of foreigners come as part of a guided tour, invariably staying in an isolated part of the city and visiting the main sites on a short leash. I was able to walk around unescorted on several occasions. My experienced companion marveled at the soft touch displayed by our hosts.

One time, our chaperone and his driver were planning to eat dinner with us at our hotel but were suddenly called back to their office at 6pm. Left alone, my two companions and I agreed it was time to go walk-about – and so we did, unescorted.

Pyongyang suffers from an antiquated power grid, and most of the lights were out. We made our way to a local café that, to our immense relief, served up a respectable pizza.

The establishment was staffed mostly by girls in their early twenties who, far from being taken aback by the intrusion of foreigners, seemed quite amused by it all. My order, made in jest, for a ‘kimchi pizza’ was met with loud and uninhibited giggles.

To be sure, we weren’t the high-end clientele in the café. As a young couple paid their bill, I watched the man pull a bankroll of hundred-dollar bills from his pocket for the two bottles of rot-gut “English” whiskey that his date seemed intent on drinking. (I noted several supposedly European liquor brands I had never seen before this trip – all of them most likely cheap swill made in China.)

Another revelation hit me while in the café. It turns out there are effectively two different television networks in North Korea – one for foreigners like me, and one for the residents. Both serve up state propaganda at full blast, but with very different tactics.

The TV in our hotel bar, for example, showed a constant stream of North Korean war films – usually glorifying those who fought against the Japanese occupation from 1925-1945 – or the official news channel.

While none of us spoke Korean, it was clear that in the café we were watching reality TV. As far as we could make out, a camera crew was going around Pyongyang and confronting women who failed to conform to whatever passes for their sense of dress code.

One hapless interviewee was caught with a t-shirt sporting English lettering. Another was sporting a hair clip encrusted with sequins. Yet another was wearing stiletto heels.

It was like watching a North Korean version of Joan Rivers’ “Fashion Police,” and I was hooked.

What I Un-Learned In North Korea: Green Martian Spies A Property Market

 

It was my fourth day in Pyongyang, and I woke up at 5:30 to the first signs of sunrise. I decided to go for a jog to escape the stifling dry air in my hotel room.

I left my room on the 31st floor and pressed the button for the elevator. As I waited for it to creak up from the lobby, the power suddenly shut down and brought it to a halt — luckily, before I had actually entered.  The hotel’s backup generator kicked in a couple of minutes later and it continued its journey upward.

After finally descending, I made my way past a couple of snoozing minders who were escorting a delegation of Russian military officials also staying in the hotel.  No one protested my unilateral move to the street, so I went ahead on my own. My route took me down a normally busy avenue that was deserted at this early hour, and past the central railway station.

People were already streaming from the station, many of whom were passing a giant ‘jumbo-tron’ screen that was broadcasting old Korean war movies for the entertainment of those travelers waiting to catch their bus connection.

As I continued my run, I reached the banks of the Taedong River, which bisects the city. Hundreds of young uniformed ‘soldiers’ (I use quotation marks here since the average age seemed to be around 14) were lining up for morning formation.  I turned to follow a bike path that parallels the river, and by now the sun was poking above the horizon.

A thick fog had set in, and I could barely make out the giant Yanggakdo International Hotel on a small island to which most visiting foreign tours are relegated when they visit. A group of middle-aged women were doing tai-chi on the riverbank, and some old men were fishing from a small bridge.

 

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The most remarkable thing about this run, and my impromptu encounter with Pyongyang’s morning commuters, was their reaction when they saw me – which was to say, no reaction at all.  Imagine if you were walking through your hometown, and an eight-foot green Martian suddenly emerged from a corner and ran past you. I’m guessing that you would feel the same sense of surrealism that these North Korean commuters likely felt when a six-foot American in Nike shorts and a bright blue shirt jogged past them in downtown Pyongyang.

But invariably, their reaction was to avoid eye contact and pretend that nothing unusual was happening.  There was an exception to this, of course, and that was the children. The kids that I encountered on my morning run stared, and pointed, and often smiled. I waved and smiled back.

I went for a run on every morning of my visit, primarily because it was my opportunity to move around the city unimpeded. I succeeded on every morning save one.  While at dinner on our third night, two of our group informed our host of our intent to go for a morning run at 5.30am. He suddenly became motivated and announced that he would join us.

Sure enough, he was waiting when I entered the lobby the next morning – wearing the same clothes and Oxford shoes that he had worn to dinner the night before.  Bemused, but saying nothing, we joined him on the street and watched as he proceeded to run. We followed along, and continued for a couple of miles before he stopped and lit a cigarette (the first of what would be about three packs that he burned through that day). It became readily apparent that the running segment of our outing was over.

* * *

MOST WORLDLY PEOPLE wouldn’t believe that Pyongyang has a viable property market. But here we were, on a cold and clear morning, reviewing the quality of construction on the roof of a four-story building in the central neighborhood of Pyongchong .

Until recently the concept of private property ownership was unheard of, and is still taboo.  The state provides a place of residence to all government employees – in other words, to everyone – in Pyongyang  But in the past couple of years it’s become common practice for residents to sell their ‘right of residence’ to other North Koreans in return for cash (dollars or renminbi, naturally).  The system works well for the newly minted donju, or oligarchs, who want a riverfront view, or to live closer to their workplace or children’s school.

While foreign ownership of residential property in Pyongyang and most of the DPRK remains forbidden, we heard that some adventurous Chinese businessmen have established nominee relationships with property owners. They effectively ‘own’ flats in the city that they are able to sell for profit in a rapidly appreciating market.  Recent media reports indicate that some city center residences are selling for as much as $200,000.

We visited several building sites throughout our stay, most of which were high-rise residential buildings of twenty stories or more. The sheer number of these projects reminded me of Dubai ten years ago.  Watching the building work, I couldn’t help wondering just how sound the construction is. Many of the workers are doing second jobs in the growing ‘shadow’ economy. The government issued a rare statement of apology when a fully inhabited 23-story apartment building suddenly collapsed in 2015. No one knows how many were at home, but insiders estimate that up to 400 died in the disaster.

To be fair, the building materials on hand appeared of reasonable quality to a layman like me. And, while a health and safety inspector might have been appalled at some of the contraptions these workers were using to do their jobs, they didn’t appear significantly different from building sites I have seen in other Asian frontier markets.

In central Pyongyang, apartments are being sold for $300 to $500 per square meter, which is about half the cost in Moldova, Europe’s poorest nation.  We observed one building site where two units were for “sale”; the available floor area was 80 to 100 square meters, with prices ranging from $25,000 to $45,000 per flat.

The four-story commercial building in the central Pyongchong region that I mentioned was previously priced to sell at $180 per square meter. But construction had never advanced because the “seller’s” capital had been depleted. We made a conservative estimate that it would take another $500,000 to finish the job. Nevertheless, as I stood from my vantage point on the roof, I counted five cranes within this central neighborhood – all of which were working on high-rise apartment towers.

 

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Given the paucity of basic amenities throughout most of Pyongyang, my inclination was that a restaurant or market would ultimately do very well there.  Demand for homes in and around the city center very clearly outstrips supply. We were shown a suburb several miles outside of central Pyongyang where the government intends to build 65,000 housing units from January.

And there’s another sign of creeping capitalism: the arrival of trading companies and real estate agents setting up in response to lucrative opportunities. Brokers have started advertising available housing units on the Kwangmyong, or national intranet.  Of course, the Intranet is heavily monitored. We were told that the regime is not yet comfortable with this phenomenon, and a handful of brokers who advertised their services too aggressively have been arrested. Yet the practice continues, even though prudent agents are keeping a low – and largely off-line – profile.

Beyond real estate, many international companies are entirely overt. It’s a popular misconception that sanctions from the U.S. and other governments prohibit any business being conducted with, or within, the DPRK.  While official guidance from the U.S. Treasury forbids any import of North Korean goods, there’s not a blanket ban on exports.

Beyond the predictable restrictions on arms-related exports, business with entities on the Treasury’s black list and “illicit economic activity” (read: money laundering or drug smuggling,) the rules become a little fuzzy.  Trade in “luxury goods,” for example, is off limits, though just what defines luxury is open to interpretation. Louis Vuitton handbags? Swiss chocolates? Organic cat food? Your guess is as good as mine, and this is undoubtedly an intentional tactic on the part of the Treasury to minimize commercial activity.

Along with untold numbers of mostly Chinese manufacturers outsourcing labor-intensive functions to North Korea from textiles to IT, Western names are also here – like the global shipper DHL. The Swiss pharmaceutical giant ABB has maintained an office in Pyongyang for over a decade, and Koryolink, North Korea’s telecom network operator, is a joint venture with Egyptian-owned Orascom.

What I Un-learned in North Korea: Change is Coming

 

TO BE CANDID, Pyongyang doesn’t have much in the way of nightlife. In fact, it has nothing. Our evenings typically involved dinner with our hosts, then a pint of local (and rather good) beer at the hotel bar before retiring for the night.

On our last evening, we managed to escape the claustrophobic confines of our hotel lobby to roam around the neighborhood, again unescorted. By this time it was completely dark, and Pyongyang’s power grid had failed most of the buildings on the street.  The result was a feeling of complete isolation – yet strangely, it felt like the safest place I have ever been. As in many of the Communist countries of the last century, crime is virtually nonexistent in Pyongyang.  We made our way past the main bus depot and the ‘jumbo-tron’ screen playing another anti-Japanese war film, then walked inside the central railway station to admire the architecture.

Less than a minute after we entered the arrivals hall, a young female police officer approached and started talking to us. Without comprehension, we responded with the traditional vapid smile and shrug common to tourists around the world.  The officer pointed to the red armband on her overcoat, and then motioned for us to follow her.

I suppose this should have been a cause for intense worry – here we were, two unescorted foreigners in the middle of Pyongyang, being detained by the local police. For a split second, I envisioned spending the next six weeks in a holding cell, waiting for Bill Clinton to be dispatched to North Korea to bring me home.

But the officer’s body language, far from threatening, was friendly and she had a bright smile on her face while she was speaking to us. I looked at my companion and shrugged, then began to follow her. After all, what choice did we have?

The officer led us to the end of the arrivals hall and stopped at a large steel double door. It was locked. She knocked several times, until an officer on the other side opened up.  We entered – and found ourselves in the VIP arrivals hall.

Far from being confrontational, the officer had simply wanted to show us to the business lounge! We smiled, said “Konsomnida” (thank you), and spent ten minutes looking at some monuments to Kim Jong-il and the recent 70th anniversary of World War II before returning to our hotel.

* * *

Shortly after returning home, I saw a photo essay in the Washington Post, which promised several photos of “what it’s like to live in North Korea.” Predictably, the photos portrayed North Koreans in the most sinister and miserable ways imaginable – screaming allegiance to the “Great Leader,” wearing filtered masks in the subway, dirty old men in the streets.  It’s understandable, of course — newspapers promote fear because that’s what sells. Consequently, it’s our duty as reasoned individuals to remember that fact.

I’m not for one second glossing over the extreme poverty to be found in North Korea, nor the excesses of the regime. This is one of the most desolate and isolated countries I have ever been to.

Yet it also occupies some of the most valuable territory on the planet.

A small country of 25 million, North Korea shares borders with two of the world’s three superpowers. Its coastal port of Rajin is the northernmost ‘warm-water’ port on the Asian Pacific rim, and its use is coveted by China, Mongolia and Russia – who recently forgave $10 billion in Soviet-era debt in return for the right to develop port and pipeline infrastructure in the DPRK.

Negotiations are currently under way between Russia and South Korea for construction of a gas pipeline that would see Russian gas exported through the DPRK to the South. If completed – and the Russian government recently created a new ministry specifically to broker such energy deals in Asia – this would turn North Korea into an energy transit economy, with all of the financial upside that implies.

Current trends indicate a growing geopolitical faultline in North Asia, and I believe that this will be one of the world’s most interesting regions for the next fifty years.  China and Russia are increasingly resistant to external Western influence. Japan, until now America’s closest ally in the region, is a ticking demographic and economic time bomb. The global balance of power will be tested in this region, potentially more than anywhere else. And the DPRK sits squarely in the middle of it all.

NK end

As my flight departed back to Beijing, I thought about these global trends and realized that I was leaving with more questions than answers. But I also found myself thinking about that smiling police officer, the curious schoolboys on the street, and the giggling café waitresses that I met while on my slightly unauthorized excursions.

North Korea has evolved in the past decade. And after my visit, I firmly believe that this country is destined for unimaginable change in the next ten years.

I also believe that the time has come to assess more critically this pariah of nations, and examine it as objectively as one would any other frontier market.

It isn’t ‘investor-ready’ but, just like Iran and Cuba, for the adventurous and the intellectually curious, it bears close watching.

NK Kevin

Kevin Virgil is the CEO of Frontera, the news and information network with over 18,000 subscribers operating in the frontier markets, and the Frontera Investor Group (FIG), which facilitates introductions and deals for its clients. He served in the US military’s special operations community and as a foreign service officer with the US State Dept. More recently, he has worked in corporate finance and equity capital markets for Merrill Lynch and UBS.

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