Joint Korean factory park opened to overseas investors, but it’s a tough sell

SEOUL, South Korea—The two Koreas took an initial step to open their jointly run factory park to overseas investors, but the compound in North Korea remains a tough sell despite its cheap labour, foreigners who toured the complex said.

North Korea allowed about 30 foreign government officials, central bankers and diplomats to tour the industrial complex in Kaesong.

The foreigners were in Seoul, South Korea, for a conference of the Group of 20 countries.

The visit occurred a week after North Korea executed Jang Song Thaek, the powerful uncle of its leader, Kim Jong Un, as a traitor.

A senior North Korean official told The Associated Press earlier this week that the country’s efforts to attract investment would remain unchanged after Jang’s death.

Members of the delegation that toured the Kaesong complex said North Korea will face challenges in bringing foreign companies to the park, jointly run with capitalist South Korea.

“This is an authoritarian regime with a very nasty way of punishing anybody … who is against the regime,” said Paola Subacchi, director of international economics research at Chatham House, an independent policy institute based in London. “There’s no transparency, no accountability, nothing that could make an international investor happy and willing to invest.”

But Subacchi said the complex’s expansion might bring positive changes to North Korea because it would provide jobs and help feed North Korean workers and their families.

Hong Yang-ho, South Korean chairman of the committee that oversees management of the park, estimated the complex would create jobs for about 120,000 North Korean workers if it is fully occupied with factories.

About 40 per cent of the complex is currently being used.

The industrial park combines South Korean capital and technology with cheap North Korean labour.

Currently around 53,000 North Koreans are working in the complex at some 120 companies.

North Korea is estimated to have received $80-million in workers’ salaries in 2012, an average of $127 a month per person, paid in U.S. dollars, according to South Korea’s Unification Ministry.

The invitation to visit Kaesong was the first concrete step that the two Koreas have taken toward opening the complex to overseas investors since they agreed to restart the park in September.

Operations had been halted in April when North Korea withdrew its workers amid tension over its threats of nuclear war.

The complex reopened after North Korea toned down its rhetoric and began pursuing diplomacy with South Korea.

The two Koreas also agreed to work toward attracting overseas investment and discuss other ways to improve business, including better communication and allowing people and goods to move more freely to and from Kaesong.

South Korean workers in the complex communicate with their colleagues and families in the South through telephone landlines and facsimiles, and there are no mobile phone networks or broadband Internet providers in the North Korean city.

Domenico Lombardi, a think-tank director, said he would not build a factory in Kaesong if he were a businessperson because of the risks and high uncertainty.

But he said it was a positive sign that North Korea was eager to show the park to foreigners.

“This is the first step of what a more open North Korea would be one day,” said Lombardi, director of the Global Economy program at the Center for International Governance Innovation, based in Ontario.

The next challenge for North Korea will be “making their own economy more accessible to foreign investors,” Lombardi said.