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Investment

Business in North Korea is economic adventure

North Korean leaders have said they will open their country economically. But so far, only a few Western firms have business ties with the Asian country. Trade with Germany is low-key, as the risks involved are manifold.

A huge statue of late North Korean leader Kim Il Sung towering over visitors in central Pyongyang, North Korea.

A huge statue of late North Korean leader Kim Il Sung towering over visitors in central Pyongyang, North Korea.

On the surface, Volker Eloesser from the German state of Lower Saxony seems to be your ordinary entrepreneur. He runs an online retail platform for wooden windows in Bissendorf. But he's also got a second company which makes him stand out quite a bit. Back in 2008, Eloesser founded a software firm called Nosotek in North Korea's capital, Pyongyang.

It's a joint venture he runs together with a North Korean partner, providing software for online games, web applications and e-commerce portals. The firm employs more than 30 North Koreans. "They're highly skilled, but have little or no knowledge of Western-style economies and how to deal with foreigners," Eloesser said in describing the staff.

North Korea's isolated position makes the job pretty hard sometimes, he added. The Asians, for instance, are requested to program games for Westerners, without really knowing their target audience. Eloesser says the money he saves in terms of lower wages is largely eaten up by resources he has to put into resolving huge communication problems.

Profit margins are not really big - but the company owner hopes this might change. "North Korea is one of the last countries with a huge development potential and offers the opportunity to shape developments at an early stage," Eloesser argued.

Skyscapers in Pyongyang

Pyongyang is North Korea's largest city

Low trade volume

North Korea, with its natural resources such as coal and iron ore deposits, is in particular drawing raw material and textile companies from China. In some parts of the country, the population is highly qualified. There are many specialists involved in the information technology sector, or in the making of animated films.

Regardless, German entrepreneurs such as Volker Eloesser are few and far between in North Korea. In 2007, the Prettl Group started building a factory in the special economic zone of Kaesong. A spokesman for the group told DW that the firm had given up on the project, relocating to Vietnam instead. In 2008, German clothing company Gerry Weber went to North Korea, only to turn its back on the country three years later.

According to "Germany Trade and Invest," there are currently no significant investments being made by German firms in North Korea. And bilateral trade is low-key, too: Germany's Statistics Office said trade volume between the two nations amounted to a meager 33 million euros ($43 million) last year.

North Koreathus ended up in 165th position on a list of nations with which Germany has trade ties. Even the trade volume between Germany and Rwanda was higher over the same period.

General view of North Korea's Kaesong industrial complex

In the Keasong special economic zone, North Korea has been trying out a bit of market freedom

No instrument protection

Investment risks are hard to calculate in North Korea, said "Germany Trade and Invest" spokesperson Frank Robaschik. "It starts with the question of where to get electricity and the reliability of water supply on the ground," he said. "But what's even more fundamental is that we don't have an investment protection treaty with the Asian nation."

That means German investments in North Korea are thus subject to the arbitrariness of the authorities. Should North Korea, for example, prevent a company from transferring its profit abroad or nationalize it, hardly any means to intervene would be available.

Add to it North Korea's poor image. Whoever deals with a dictatorship that gravely violates human rights subjects himself to criticism from clients.

Beware of sanctions!

Also negatively impacting economic relations between Germany and North Korea are the sanctions that the European Union imposed as of 2006, because of the Asian nation's nuclear tests. Companies have to careful not to deliver goods that are affected by those sanctions to North Korea.

"That applies particularly to so-called dual-use goods - meaning goods which could be used in the military field - but also to luxury items, said Robaschik. "And firms you might seek to cooperate with may be on sanction-related blacklists," he added.

North Korean leader Kim Jong Un speaks at podium in Pyongyang

During a New Year address, Kim Jong Un pledged economic reforms

Eloesser is aware of the investment risks. "You simply have to know you're dealing with high-risk investments, because you never know how changes in the macropolitical sphere might influence your business operations," he warned. North Korea's continued nuclear tests are detrimental to relations with Germany, he noted - yet he still hopes that North Korea will open up, in line with announcements made by dictator Kim Jong Un in a speech earlier this year.

Eloesser claims the first signs of such an opening have been making themselves felt for some time now. Being among the first on the ground is worth the risk, he believes. "He who is in the market at an early stage will stand the best chance of profiting when that market starts booming," Eloesser pointed out.

Eloesser travels to Pyongyang several times a year. He's got an apartment there and a car, and he says he can move about relatively freely. Walking in the mountains outside Pyongyang isn't much of a problem either. He wants to help lure more business people to North Korea: Twice a year he stages a trade fair, which he sees as a platform to help foreign companies get in touch with North Korean enterprises.

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