Jim Rogers recently told investors to forget about emerging markets and go for North Korea. As a matter of fact, he put his money where his mouth is, as he bought some North Korean coins. This may sound like an offbeat advice, but I actually concur. After all, this man did not become so wealthy just by coincidence. How do I know this country might a future hotspot for investors? Well, I've actually been in North Korea.
Flight to Asia
My journey started in China. I flew from Europe to Guangdong, the third largest city, and continued to Yanji, a small border town in the northeast of the country. It's a typical middle-of-nowhere town, I didn't see other tourists and nobody understands English.
But who would have thought I'd rate Yanji as modern and liberal just two weeks later leaving North Korea.
North Korea, or Democratic Peoples Republic of Korea as they call it, is considered to be the most isolated and repressive state in the world. The cult of the Kim dynasty, ruling since end of WOII, holds an iron grip on the population.
Founding Father is Kim Il Sung, branded as 'eternal president'. This man is literally all over the place, you just can't hide from him. Pictures and statues of him are abundant, and the citizens (have to) wear a badge on their clothing with his picture on it. His son Kim Jong Il took over in 1994, and now grandson Kim Jong-un holds absolute power.
It's this latest transition that makes me believe there is finally some hope glimmering of a more open economy and investment possibilities.
But back to Yanji. This is how my first steps into the hermit state looked like:
A one-way route into North Korea, crossing the Tumen river. Looks like an Indiana Jones set doesn't it? From here, no cell phone connection, no internet access, and government minders watching your every move.
As anyone can imagine, touring North Korea is not your everyday holiday. Everything is strictly planned and monitored. Like to wander on your own? Forget it, you are not allowed to leave the hotel premise but the planned bus trips with your minders. Its minders in plural because they have to monitor eachother as well. They have to abide by the rules too, but they were pretty good company and speak English quite well. Also, you can't travel on your own, so you are always part of a group.
Tourism is growing
A telling sign the economy is opening up is the increase in tourism. Without releasing any official figures, the government said that numbers which were increasing steadily from 2000 jumped sharply after 2009. Estimates differ, but nowadays a few thousand tourists visit the country on an annual basis. According to the government; "foreigners are attracted to the eye-catching achievements made by the country in the effort to build a thriving socialist nation in recent years". It also recognised that, on their return home, tourists were saying positive things about their experiences. I'm not sure about the first, but the word-to-mouth marketing sure is true. North Korea may probably not be on top of your holiday where-to-go-next top 10, but if you are looking for an adventure
you won't forget in a lifetime, I highly recommend it. Most tourists are from China and Europe, but unfortunately South Koreans, Americans and Israelis are barred from entry.
Development of tourism could boost their depressed industries such as construction, services, and electricity, gas and water supply. Revenue creation from incoming tourist receipts can be used for growth in other business development, too. Even though there is concern that the money generated by tourism could be channeled for military use, the approach to tourism as a future growth driver by North Korea is sending a clear message to the world. Because of cheap labour costs, other countries around the world are more likely to deem North Korean tourism projects as risky but profitable ones. So regardless of the current lack of capital and infrastructure for tourism, North Korea's recent movement towards tourism as a future revenue source is encouraging future growth.
After going through the necessary custom checks, we shook hands with the government tourist guides. The plan was to do a bus tour throughout the north east part of the country, called Hoeryong province, ending up in the third largest city of North Korea, Chongjin. The guides informed us about the strict rules, like not taking a picture without asking for permission. Understandable in a way, because we regularly were passing by shanty towns. This area is very poor, and the infrastructure is horrible. The apparent exceptions are the 'holy' Kim Il Sung landmarks, these are treated with the highest respect. Making jokes about their leaders could mean imprisonment, so we were warned to be very respectful too. We were told to bow for their leaders, and that was not a kind request. Anyhow, the nature in this area was beautiful as we came across waterfalls, green hills and a picture perfect coastline.
A typical Kim Il Sung statue
Although North Korea's infrastructure is extensive, it is crumbling and in need of expansion and modernization. The country's road system, estimated at 20,000 to 31,200 kilometers, is limited and unpaved. Private cars are scarce and the number of trucks is limited. The 5000 kilometer railway network, originally built by the Japanese, provides 70 percent of passenger transport and carries about 90 percent of the annual freight traffic.
Most of the country's ports and airports need modernization. Of North Korea's 12 ports, only a few can handle large ships, while only 22 of its 49 airports have paved runways. Pyongyang's Sunan airport operates 20 weekly flights, servicing only 6 destinations.
North Korea suffers from a shortage of oil and gas. The oil shortage came after the country was deprived of its access to low-priced Soviet oil and saw a significant decrease in oil shipments from China. The country produces electricity from fossil fuel and hydroelectric power generators. Over the next several years, North Korea will approve funds to construct over 100 new power generating plants. The state-owned oil and gas facilities are being privatized and provide excellent opportunities for investment. The telecommunication system is undeveloped. The country has 1 Internet service provider, not internet like we know but their own intranet version, and no cellular telephone system.
However, there are interesting projects being rolled out. A few years back they went all-out to develop transportation infrastructure in the port city Rason with Chinese and Russian investments. More developments like this are scattered throughout the country. The government is not hesitant to invoke foreign investors, like an Egyptian telecommunication company to ramp up their phone grid. Its these type of investments which should spur economic growth.
Truman Show in Chongjin
We did not meet any local people so far, but that was about to change. Remember the Truman Show? A classic movie, and now I know how Truman must have felt. We had to visit another Kim Il Sung statue near the town centre and for the first time stepping out of the bus we were surrounded by the local people. They looked amazed at us. I felt like an alien. These people are completely unaware of the outside world, told their entire life they are living the socialist dream under the banner of their godlike leaders. But Chongjin is for most part a facade. Behind the pretty apartment blocks near the main road, endless slums can be witnessed if one peeks out of the speeding bus. I saw a lot of impoverished people on the street. Not uncommon in Asia, but we are talking now about the 'socialist workers paradise on earth'. Taking pictures was absolutely forbidden, but i managed to snap one.
Chongjin's central square
The theatre show continued, we visited the local library where students seemed to be working behind fancy computers. I noticed however that nobody seemed to notice us, as they kept staring at the computer screen doing...well nothing. Odd behavior, maybe somebody instructed them in advance how to behave? Anyway, the library wasn't that special, and after an hour we headed of to a factory. Not a factory nearby though, we toured more than an hour to get to one where they produce beer, bread and other basic necessities. En route, more slums and a lots of people working on the fields caught my eye. We finally arrived and somehow, no workers were present but a handful as they were celebrating another Kim Il Sung glorification day or something like that. During the guided tour I did not get the impression this factory is running full steam. No wonder people are starving, this is all but an efficient economy. North Korea is the largest importer of the world food program.
The country suffers from chronic food shortages and periodic famine, even though neighbors China and South Korea haven't had such problems for many years. Why are the North Koreans always going hungry?
Poor growing conditions, fertilizer shortages, and general mismanagement. On the most basic level, the terrain and climate in North Korea aren't great for farming. In defiance of nature, Kim Il Sung decided in the 1950s that domestic farmers had to fulfill all the country's food needs. They scraped by for decades with only occasional famines, but the system totally collapsed in the 1980s, when the Soviet Union cut the supply of subsidized fossil fuels. When crop yields declined, the government tried to plug the gap by increasing acreage. Heavy seasonal rains eventually eroded the new farms and flooding became a chronic problem. Even though the program to expand arable land failed miserably, North Korean leaders thought their mistake was not going far enough. Kim Jong-Il is said to have supported a plan to bulldoze the entire country, in an attempt to turn mountains into fertile plains. Fortunately, Kim never had the resources to implement the great flattening. However, it is believed more than a million people died in the great famine of the 1990s.
Analysts say new leader Kim Jong-un has several options to ease the food shortage. North Korea has an enormous supply of literate citizens willing to work for cheap. The best long-term solution is to reorient the country's economy toward light manufacturing, enabling it to trade goods for food. That's what South Korea does, and it hasn't experienced significant food shortages in four decades. Alternatively, the state could loosen its control over farmers. North Korea characterizes its farming system as cooperative, but it's more appropriately termed as Stalinist. The government tells farmers what to plant, how much to plant, and when to plant it. A state-owned truck rolls through the land at set dates, spreading fertilizer onto the fields. At the end of the season, another government truck arrives to collect the harvest.
But lately, the state allows farmers to cultivate a small private plot on the side. They grow whatever they want, and can sell their products in the market place. Observers say the privately operated plots are invariably more productive than the government-managed farms, suggesting strongly that allowing farmers to make their own decisions would help ease the food shortage. Imports may still be needed, but the country finally is heading into the right direction.
Domestic flight to Pyongyang
We were the first ever tourists taking a domestic flight in North Korea. Quite the daredevil trip, boarding an old Russian plane which isn't flying regularly. But hey I came here for an adventure. Two hours later we arrived in Pyongyang, capital city of North Korea. Pyongyang is a true showcase capital. Wide avenues, countless landmarks and new highrises are there to impress the visitor. I was impressed to be honest, and we even got stuck in a small traffic jam here and there. The economy is in a much better shape than say 10 or 20 years back. You can google old photos with completely empty roads, but this is not exactly the reality anymore.
In Pyongyang I did see some other tourists, when visiting the zoo, library, war museum, US pueblo spy ship and other tourist hotspots. Talking about war, citizens are constantly reminded of the Korean war. When you turn on the telly: war. Minders talk: war. Landmarks are about: war. Newspapers inform you about: war. Karaoke songs: war. Don't mention the war? North Korea is not a place for the Basil Fawlty's among us.
Its this 1950s mindset which keeps North Korea in the dark. What a difference with their southern neighbor, anybody knows they live the present and dream the future.
Ironic though, that this war is dubbed as the 'forgotten war' somewhere on page 52 in our history textbooks. But North Korea does know how to celebrate their 'war victory'; the Mass Games.
Mass Games can basically be described as a synchronized socialist-realist spectacular, featuring over 100,000 participants in a 90 minute display of gymnastics, dance, acrobatics, and dramatic performance, accompanied by music and other effects, all wrapped in a highly politicized package. Students practiced every day from January onwards. The 90 minute performances are held every summer and feature the 'largest picture in the world' a giant mosaic of individual students each holding a book whose pages links with their neighbor's' to make up one gigantic scene. When the students turn the pages the scene or individual elements of the scene change, up to 170 pages make up one book. Today, mass games are regularly performed only in North Korea, where they take place to celebrate national holidays such as the birthdays of rulers Kim Il-sung and Kim Jong-il. In recent years, they have been the main attraction of the Arirang Festival in Pyongyang. The Games emphasize the discipline of the people, but unfortunately this discipline is being utilized for the wrong reasons. Imagine if all this effort is employed for economic viable goals, the country would certainly be in a better shape. Tip: go look up Mass Games on Youtube, you'll be impressed.
Its kids primarily performing in the Mass Games, but what about their education?
We went to a school to check that out. We actually talked to some North Korean university students. Their English is far from perfect, so I couldn't hold a fluent conversation. Education in North Korea is free and completely controlled by the government. Students are taught the communist ideology as well as the greatness of their leaders, Kim Il Sung and Kim Jong Il. It serves as the medium in transforming the people into loyal communists. Aside from basic grammar or mathematics, everything else that they learn in north Korean's system is in service of the history and culture and actually the methodology of the Kim family. For example, in North Korea today the average student does not know that a man has landed on the moon because that could know that US has done something that was incredibly successful. As a matter of fact, the US is not exactly portrayed as a friendly nation. Check out the next painting I saw on a school wall.
US, Japan and 'puppet' South Korea are not so popular
There are 3 major universities in the country: Kim Il Sung University, Kim Ch'aek Technical University, and the Koryo Sungkyunkwan University. It is believed that only those students with high loyalty to the Party and desirable class status are given recommendation by their teachers to proceed to higher education. Those who are not given recommendations are to join the military or work in farms and mines.
The demilitarized zone
After spending some days and nights in Pyongyang it was time to go south, to the 'scariest place on earth' according to Bill Clinton: the DMZ.
This is a strip of land running across the Korean Peninsula that serves as a buffer zone between North and South Korea. The DMZ is a de-facto border barrier, which runs along the 38th parallel north. The DMZ cuts the Korean Peninsula roughly in half. It was created as part of the Korean Armistice Agreement between North Korea, the People's Republic of China and the United Nations Command forces in 1953.
looking at South Korea
Very strange that this situation has been going on for 60 years now. Technically, the two countries are still at war. This negatively impacts trade possibilities on a very large scale.
One can imagine, that as soon this ends (peacefully), North Korea can grow their economy tremendously. Hopefully, the UN/USA can lift the economic blockade of the country too. Its free trade that promotes peace, not the opposite.
North Korea's economy is a centrally planned system, yet the role of market allocation is limited. Although there have been scattered and limited attempts at decentralization, as of mid-1993,Pyongyangs's basic adherence to a rigid centrally planned economy continues, as does its reliance on fundamentally non-pecuniary incentives. The collapse of communist governments around the world in 1991, particularly North Korea's principal source of support, the Soviet Union, forced the North Korean economy to realign its foreign economic relations. There have been reports of economic liberalisation though, particularly after Kim Yong-Un assumed the leadership in 2012. For example, economic exchanges with South Korea have begun: see Kaesong Industrial Region. North Korea had a similar GDP per capita to its neighbor South Korea until the mid-1970s starting from the aftermath of the Korean War but with a GDP per capita of less than $2,000 in the late 1990s and early 21st century, there is still a sharp contrast with South Korea, which has one of the largest and most diversified economies in the world.
In a bid to bolster its laggard economy, North Korea has planned to set up new special economic zones and has created a group to assist potential foreign investors. According to state media the zones "are already starting to be organised all over the country".
North Korea is still regarded as too risky by many businesses, but has had its eye on expanding its use of economic zones since at least June when it announced foreign investors would be given preferential treatment for land use, labour and taxes.
Not known to many people, authorities have tolerated unofficial capitalist activities for years. It has experimented with special economic zones as a means of encouraging foreign investment since the 1990s. As earlier mentioned, a running example is the Rason Special Economic Zone in the far northeast of the country.
While Pyongyang has shown new signs of trying to reform its economy over the past year and a half, it has also continued to maintain state control. Instead of "reform" or "change," North Korea referred to the free-market style changes last year as "new economic management methods". Change may be slow, and no matter how you put it, it is change.
North Korea has also been quietly building up its IT industry. Universities have been graduating computer engineers and scientists for several years, and companies have recently sprung up to pair the local talent with foreign needs, making the country perhaps the world's most unusual place for IT outsourcing. With a few exceptions, such as in India, outsourcing companies in developing nations tend to be small, with fewer than 100 employees. But North Korea already has several outsourcers with more then 1,000 employees. At present, the country's outsourcers appear to be targeting several niche areas, including computer animation, data input and software design for mobile phones. U.S. government restrictions prevent American companies from working with North Korean companies, but most other nations don't have such restrictions.
The path to IT modernization began in the 1990s but was cemented in the early 2000s when Kim Jong Il declared people who couldn't use computers to be one of the three fools of the 21st century.
Last days in the country
Well, glad I survived the 'scariest place on earth'. We headed back to Pyongyang on the desolated roads.
outside Pyongyang, roads but no cars
There was one important thing left to do on the agenda. Visiting North Korea's holiest site for North Koreans; Kumsusan Palace of the Sun. It serves as the mausoleum for Kim Il Sung and his son Kim Jong Il. This place lifts the idea of a personality cult to a whole new level. Endless pictures praising their leaders in a dozen hallways, and finally, after constantly hearing about those two men for days now, I saw their embalmed bodies lying in a sacrophagus. I was not allowed to take a picture, but here's one from inside the palace.
Well folks, this turned out to be the grande finale of my trip. We left Pyongyang and boarded a train to Beijing. 24 hours later, I was free again.
North Korea as a holiday? I'd say yes, if you like offbeat adventures and an exciting story to tell during birthday parties.
How about North Korea as an investment? Well, Jim Rogers did buy some coins, but in a way he's actually short. "Coins and stamps are the only way I can invest in North Korea. … At some point down the line, North Korea will cease existing as a country. Then the value of the coins will go up," Rogers said in an interview.
I do agree North Korea is a prime frontier market, but I don't believe in a sudden collapse. The regime has proven to be very robust to catastrophes (for them), like a widespread famine, worldwide revolts against the government in eastern Europe and more recently in the middle east, and the rise of the internet. And there are too many signals that indicate the government is opening the economy. It's a very slow process, but it's real. More trade will increase the chances on peace, and peace promotes trade. Its a vice versa trend that is going up. The new leadership seems to be more open to the outside world. Remember, literally everything needs to be ramped up, from infrastructure, to real estate, farming, you name it. The growth could be enormous as soon the economy is set free. Just look at what happened in China.
How to profit from this? There are no direct investment possibilities. North Korea does not have a stock market nor an outsider can buy property. Indirectly there are some options. You can buy their government debt. You can buy coins and stamps (I have them). You could also invest in companies who actively trade with North Korea, mostly Chinese and South Korean.
For now, thanks for reading!